National Housing Bank Caps Housing Loan Rates at 10.75 % for Economically Weaker Sections

National Housing Bank (NHB)  has capped lending rates for specialist mortgage lenders like LIC Housing Finance (LIC HFL) which seek refinance from it.The move comes when interest rates are climbing &  the government may have pushed it with an eye on elections as in the case of the Food Bill and accelerated direct cash transfers.

The housing finance regulator NHB  has capped lending rates at 10.75 % on housing loans for the economically weaker sections (EWSs) .This cap is applicable to specialised housing finance companies (HFCs),while banks will lend at base rate to the targeted segment.

Borrowers with a household income of less than Rs. 4 lakh will get the benefit of interest rate ceiling under the governments dedicated urban &  rural housing schemes. NHB said it will provide refinance at a subsidised 8.25% to 8.75 % rate to lenders, so that they earn 2% to 2.5% interest spread.Normally, NHB provides refinance at 9.8% to 10 % rate.

The idea behind the interest rate ceiling is to pass on the benefit of concessional funding to ultimate borrowers, NHB Chairman and Managing Director Mr. R.V. Verma  said ET.

Mr. R.V. Verma  said the ceiling was finalised after taking inputs from the government &  the Reserve Bank of India (RBI). Lenders will get good enough spread to give the scheme a fair trial, Mr. Verma said.

NHB will send a note to all lenders about this cap later this week. However, lenders will be free to charge any rate if they dont take refinance from NHB.The spread is not enough,taking into account the risk factor attached in funding to EWS, said DHFL Vysya Housing Finance managing Director Mr. R Nambirajan. We will make a request to NHB to increase the spread to minimum 3 % to cover higher risks, he said.

Indias largest lender, State Bank of India  (SBI),too may not gain from this move.

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