Home loans may turn cheaper as RBI mulls low rate window

  • HT Correspondent, Hindustan Times, New Delhi
  • |
  • Updated: Oct 07, 2013 11:07 IST

Home loan rates may fall in the coming days as the Reserve Bank of India (RBI) is likely to provide a special repo rate window for home loans to the National Housing Bank (NHB). The window will allow housing finance companies (HFCs) and banks to borrow funds for home loans at lower rates from the NHB.

At present, banks borrow funds from RBI at 7.5% using the central bank’s repo window. Repo is the rate at which RBI lends to banks.

The move aims to spur demand for home loans, which is stagnant at present, without fanning inflation in the economy.

“Under the facility NHB will be allowed to access the special window from RBI, which in turn will lend to HFCs and banks at cheaper rates,” said a senior official of a HFC. “Special repo window will reduce the cost lending for home loans.”

The industry is clamouring for a repo rate cut to revive the economy but the central bank is avoiding a cut as it would increase prices. RBI and the government are trying hard to stimulate the demand in the economy by providing credit at lower cost.

Last week, the government said it would infuse around `14,000 crore into public sector banks to help them offer loans at cheaper rates.

Currently HFCs are not allowed to borrow funds directly from the Reserve Bank, they can only approach NHBs to borrow funds for their loan requirements.

However in United States and some European countries, the central banks provide special repo window facilities for housing finance companies.

 

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