NHB refinance rate hike could impact home loans

Housing finance companies (HFCs) may have to revisit their interest rates as the National Housing Bank (NHB), a wholly owned subsidiary of the Reserve Bank of India (RBI), has hiked its refinance rate by 0.25 per cent with effect from April 25, 2005.

This is the second time in a little over four months that NHB has hiked the rate of interest on refinance.

Most housing finance companies (there are 32 in the country) seek refinance from NHB. In fact, a large percentage of the liability portfolio of HFCs is in the form of refinance from NHB.

Refinance by NHB is in the form of loans given to a HFC against housing loans issued by the latter.

While NHB has hiked the interest rate by 0.50 per cent (in two installments over the past four months), the rates differ for different HFCs.

While most commercial banks that are also into housing finance have adequate funds and do not require NHB refinance, companies involved purely in housing finance have to resort to refinance from NHB.

"This is the second hike in refinance rates by NHB in recent times. It first hiked the refinance rates by 0.25 per cent in December 2004. What is intriguing is that the new rates will also be applicable to existing floating rate loans," said a source of a HFC, who hastened to add: "HFCs will either have to contain their spread or pass on the additional burden to the customers."

Ramesh NGS, retail head, Gujarat, IDBI Bank, said that while the bank does not seek refinance from NHB, companies involved purely in housing finance would have to review their housing loan interest rates.

"In any case, interest rates are firming up and everybody in the business will have to make adjustments accordingly," he said.