The Hindu Business Line : Refinance amount not enough: Home finance companies

Mumbai, Dec 6 Housing Finance Companies, while welcoming the RBI measures, said the Rs 4,000 crore refinance facility provided through National Housing Bank is too small. The amount hardly represents five per cent of the total exposure of housing finance companies.

However, leading housing finance companies said the RBI measures will ensure freer flow of bank credit to the housing sector but were sceptical on how the banks will price their loans.

“Banks will now lend more freely to the housing finance companies as they can reduce their risks by routing the funds through HFCs. Also, lending to HFCs will help the banks to classify the loans under priority sector lending, thus helping them meet the priority sector lending targets. The cut in the repo rate as and when passed on by the banks will greatly benefit the home loans segment,” said Mr R.R. Nair, CEO, LIC Housing Finance.

“The RBI has announced a good set of measures. A cut in the reverse repo rate will act as a disincentive for banks to park their funds with the RBI. It will encourage banks to lend more,” said Mr Keki Mistry, MD, HDFC.

There is an uncertainty about the rates at which the RBI will lend to NHB and the rates at which the NHB will lend to HFCs. Besides, the refinance amount made available does not even account for five percent of the amount lend by all HFCs annually, Mr Nair said.

“The refinance window of Rs 4,000 crore is a good start but I would expect this amount to be increased substantially”, said Mr Kapil Wadhawan, Vice Chairman and MD, Dewan Housing Finance Company. At present, Dewan Housing Finance alone lends around Rs 2,000 crore annually.

In its growth stimulus package announced on Saturday, the RBI raised the ceiling under which the banks can classify the loans given to HFCs as priority sector lending. The limit has been raised from Rs five lakh to Rs 20 lakh. This measure is expected to increase the flow of credit from banks to HFCs.

Lending Rates

However, HFCs are not committing on when they would reduce the lending rates.

“When most of the institutions had increased the lending rates, HDFC did not raise the rates. Besides, a cut in rates will depend on our cost of funds,” said Mr Mistry.

Mr Wadhawan said despite the earlier rate cuts by the RBI, the cost of funds has not eased much. “It’s very premature to comment about a cut in our rates”, he said.

“We will know in a fortnight’s time if our cost of funds comes down. If the benefit of the rate cut is passed on fully by the banks, we could cut lending rates by 100 basis points,” said Mr Nair.

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