NHB: Keep a Close Watch on Rising Interest Rates on Home Loans
Interest rates levied by housing finance companies (HFCs) have risen to 11-11.25% from 8.5% in the past year, raising monthly instalments. With interest rates moving up, most of the lenders are going to be impacted as almost 85% of the loans are on floating (interest) rate.
National Housing Bank (NHB) asked lenders to keep a close watch on delinquencies as rising interest rates may undermine the repayment capacity of borrowers and erode asset quality. NHB regulates HFCs. HFCs borrow from banks and the market to meet lending requirements. The Reserve Bank of India has raised rates 11 times since March 2010 to rein in inflation.
The larger lenders are likely to face a greater impact than the small and medium ones. India’s 54 HFCs have a 35% share of the total housing loan portfolio. The average lending rate is 11%. The regulator has asked the lenders to take a “calibrated” view on increasing interest rates as it may impact both new and old business. “Due to higher rates of interest, customers may postpone their property buying decision. That means no new incremental business for the HFCs,” R.V. Verma, NHB chairman and managing director said.
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