RBI rate framework may limit HFC pricing flexibility, speed up bank rate transmission to NBFCs: Kotak
New Delhi, August 14
The Reserve Bank of India's proposed changes to loan interest-rate rules could reduce pricing flexibility for large prime housing finance companies, while leading to faster transmission of changes in bank lending rates to non-banking financial companies, Kotak Institutional Equities said in a report.
Kotak said the proposed framework could affect HFCs that currently use an internal prime lending rate (PLR) and offer home loans at a discount to the benchmark.
Under the new structure proposed by the central bank, floating-rate loans would have to be priced above the benchmark. This could reduce the flexibility lenders currently have under the "PLR minus" model.
The brokerage said large HFCs in the prime housing segment, particularly those with low spreads, could be impacted as the new framework may narrow the difference between rates offered to new and existing borrowers.
Currently, lenders can offer lower rates to new customers when interest rates are falling, while existing borrowers may continue to pay higher rates.
"The new regime (MCLR+) will take away/reduce this flexibility and hence, negative for these HFCs," Kotak said.
It added that during a falling interest-rate cycle, HFCs may link prime home loans to external benchmark-based lending rates (EBLR) to remain competitive.
However, the impact on affordable housing finance companies is expected to be lower as they generally have higher gross spreads and offer loans at a substantial spread over their cost of funds, the report said.
Kotak also said EBLR would not be mandatory for NBFCs and HFCs under the proposed framework, reducing concerns over their shift to external benchmarks.
The RBI's draft directions seek to bring interest-rate practices across regulated lenders in line with each other. The proposals include resetting floating-rate loans within a maximum period of three months. Existing floating-rate loans would have to shift to the revised framework by April 1, 2029.
Kotak said the shorter reset period could have a broader impact on NBFCs as they have significant borrowings from banks linked to the marginal cost of funds-based lending rate (MCLR).
Many of these borrowings are currently repriced annually. Under the proposed framework, they could be repriced every three months, allowing changes in bank lending rates to be passed on to NBFCs more quickly.
The brokerage said the proposed guidelines are expected to come into effect from April 2027, giving lenders time to prepare and comply with the new framework.
— ANI
Reader Comments
MCLR+ regime sounds good in theory but what about the practical impact on small borrowers? Many of us took loans when rates were high and now feel stuck. The quarterly reset could be a relief for future borrowers, but existing ones with longer tenures might still face issues. Let's see how banks implement this by 2029.
This is interesting. If HFCs lose pricing flexibility, they'll have to become more efficient. But I worry about smaller NBFCs who rely heavily on bank borrowings. If bank rates reset quarterly, NBFCs might face cost pressure, which could eventually trickle down to borrowers. RBI should ensure a smooth transition.
As someone currently house-hunting, this seems good for new borrowers. But the fact that existing loans only shift by April 2029 feels too long. Isn't that just delaying the fairness? Maybe RBI should expedite this. Also curious how HFCs will adapt their marketing strategies without the "discount" angle.
I think this is a well-thought-out move by RBI. The 'PLR minus' model was confusing and often benefited only those who negotiated hard. However, I hope the MCLR+ framework doesn't create a one-size-fits-all approach. Affordable housing finance companies might have different dynamics, and the report correctly points that out.
Honestly, why did it take so long for this? In India, one bank gives 7.5% to a new customer while our parents pay 9.2% on their decade-old loan. This will bring some sanity to the market. But let's also watch for banks trying to find loopholes. Regulators
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