Rates may harden on rising costs; tight liquidity likely to continue for a while.
Driven by acute liquidity pressure, banks and housing finance companies (HFCs) stepped up recourse to the refinance provided by National Housing Bank in April-September.
The refinance disbursed to banks and HFCs grew four-fold to Rs 6,950 crore in the financial year’s first half over April-September 2009, according to NHB data. Banks and HFCs can draw funds in proportion to their home loans.
Admitting a sharp rise in use of the refinance widow, R V Verma, chairman of the apex body for housing finance, said NHB had also scaled up business activity, resulting in higher drawals.
With the Reserve Bank of India keeping liquidity under leash, and tardy deposit growth, banks have raised the frequency of using the liquidity adjustment facility for managing mismatches. They have also been tapping refinance lines provided by agencies such as the Small Industries Development Bank of India.
Money markets have moved between surplus and deficit liquidity. RBI has raised benchmark interest rates five times in the financial year so far. The tight liquidity conditions have driven the cost of funds up in the system. NHB, too, has witnessed a rising cost for funds.
“The rates have hardened. But being a wholesale lending institution we will watch for a clear trend before taking a call on revising the lending rate charged to customers (banks and HFCs),” Verma said. NHB’s prime lending rate is 10.25 per cent.
According to rating agency CARE, liquidity is expected to continue to be tight, with banks taking more recourse to the RBI’s repo window, and credit growing faster than deposits.
However, transitory relief may come from two sources. One, pick-up in deposit growth. Two, successful implementation of the government’s disinvestment plan.
NHB plans to disburse Rs 10,000 crore in 2010-11. Its financial year runs from July to June. It had disbursed about Rs 8,160 crore in 2008-09.
