Atmadip Ray, ET Bureau Sep 12, 2013, 04.00AM IST | Economic Times

KOLKATA: The National Housing Bank has capped lending rates for specialist mortgage lenders such as LIC Housing Finance which seek refinance from it.

The move comes when interest rates are climbing and the government may have pushed it with an eye on elections as in the case of the Food Bill and accelerated direct cash transfers.

The housing finance regulator has capped lending rates at 10.75% on home loans for the economically weaker sections. This cap is applicable to specialised housing finance companies, while banks will lend at base rate to the targeted segment.

Borrowers with a household income of less than Rs 4 lakh will get the benefit of interest rate ceiling under the government’s dedicated urban and rural housing schemes. NHB said it will provide refinance at a subsidised 8.25-8.75% rate to lenders, so that they earn 200-250-bps interest spread.

Normally, NHB provides refinance at 9.8-10% rate of interest. “The idea behind the interest rate ceiling is to pass on the benefit of concessional funding to ultimate borrowers,” NHB chairman and managing director RV Verma told ET. He said the ceiling was finalised after taking inputs from the government and the Reserve Bank of India.

“Lenders will get good enough spread to give the scheme a fair trial,” Verma said. NHB will send a note to all lenders about this cap later this week. However, lenders will be free to charge any rate if they don’t take refinance from NHB.

“The spread is not enough, taking into account the risk factor attached in funding to economically weaker section,” said DHFL Vysya Housing Finance managing director R Nambirajan. “We will make a request to NHB to increase the spread to at least 3% to cover higher risks,” he said. SBI too may not gain from this move.

Source: http://goo.gl/K2Y0nx