NHB sees upward bias in refinance rates

National Housing Bank (NHB), the regulator for housing finance companies (HFCs), may increase its refinance rate. This rate hike would come in less than a week after the Reserve Bank of India (RBI) raised key policy rates by 25 basis points.  “We have started the process of analysing the cost of fund situation. Though we are yet to take a call (on increasing the lending rates), there is an upward bias in the interest rate in the market,” R V Verma, chairman, NHB, told Business Standard.   A hike in refinance rates would lead to increase of cost of funds for HFCs, and consequently, a rise in interest rates for housing loans. For larger HFCs, such as Housing Development Finance Corporation, the dependence on refinancing is much less because they raise deposits from public. For smaller players, where dependence is 20-25 per cent, this hike would put further pressure on their cost of funds. Other option of raising funds for HFCs include non-convertible debentures, subordinate bonds, bank finance and public deposits. However, the refinance route is the cheapest. Typically, NHB lends to HFCs at 8 per cent.  NHB last raised rate 18 months ago by 25 basis points. At present, the prime lending rate of NHB is 10.25 per cent.