RBI ex­plores loan rate pric­ing for hsg fin cos

Reg­u­la­tor Has Asked Banks To Link Their Loan Rates To An Ex­ter­nal Bench­mark

The Times of India (New Delhi edition) - - Times Business - Mayur.Shetty @times­group.com

Mum­bai: Af­ter forc­ing banks to link re­tail loans to an ex­ter­nal bench­mark, the RBI is look­ing at the way non-bank­ing fi­nance com­pa­nies (NBFCs) and mort­gage com­pa­nies price their prod­ucts.

While an ex­ter­nal bench­mark might not be man­dated for hous­ing fi­nance com­pa­nies (HFCs), bank­ing reg­u­la­tor wants to bring more trans­parency in their pric­ing. Mean­while, the RBI is also not in favour of a com­bined fixed and float­ing home loan prod­uct, which SBI chair­man Ra­jnish Ku­mar had re­cently spo­ken about.

Ac­cord­ing to sources, af­ter tak­ing over the reg­u­la­tion of HFCs ear­lier this year, the cen­tral bank is try­ing to bring uni­for­mity in the reg­u­la­tion for banks and HFCs. “Cur­rently, HFCs are not even fol­low­ing the mar­ginal cost of lend­ing rate (MCLR) and are still link­ing loans to the prime lend­ing rate. The RBI is cur­rently study­ing how they are pric­ing in­ter­est rates,” a source said.

The cen­tral bank is un­likely to pre­scribe an ex­ter­nal bench­mark for HFCs be­cause they fund most of their loans from whole­sale bor­row­ings where the price does not vary in line with RBI’s rate changes. Sources said that while com­pe­ti­tion en­sures that HFCs of­fer rates that are close to what the banks are of­fer­ing, the RBI wants more trans­parency in the prices.

On the SBI chair­man’s re­cent an­nounce­ment that the lender will seek clar­i­fi­ca­tion from the RBI on of­fer­ing fixed­float­ing rates, the cen­tral bank is un­der­stood to have ex­pressed con­cern as it pushes risks to a fu­ture date.

Ku­mar had ear­lier said that the bank was will­ing to of­fer long-term float­ing rate loans but did not have the where­withal to of­fer long-term fixed rate loans. In or­der to give choice to the bor­rower, the lender had said that it will seek per­mis­sion from the RBI to of­fer loans that are fixed in the initial years but start float­ing in sub­se­quent years.

The bank­ing reg­u­la­tor is nudg­ing lenders to en­sure that they have their re­tail lend­ing rates linked to an ex­ter­nal bench­mark like the repo from Oc­to­ber 1, 2019. Though many banks are now link­ing their home loans to the repo, Citibank was the first to use an ex­ter­nal bench­mark by link­ing in­ter­est rate on mort­gages to yield on trea­sury bills.

An ex­ter­nal bench­mark is un­likely as HFCs fund most loans from whole­sale bor­row­ings, where price doesn’t vary in line with RBI’s rate changes

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