After the RBI brought in the new reference rate structure called base rate for banks, National Housing Board (NHB) is thinking of bringing in a similar system for home loan companies.
A base rate sort of mechanism will help to bring the housing finance companies under a transparent mechanism. Customers would also benefit as they can easily compare rates of housing finance companies with those charged by the banks.
Dominant players in the home loan segment Housing Development Finance Corporation and LIC Housing Finance say such a move is under consideration.
RR Nair, CEO of LIC Housing Finance, said that since the RBI has moved to the base rate system NHB will eventually move too but will wait for six months to let the base rate regime settle in. “The formula will most likely to be similar to the base rate," he said.
While it is important for housing finance firms to match the transparency standards of the banking industry, they may face challenges in adopting a similar structure such as the base rate. While banks largely have the more reliable customer deposits as their source of funds, housing finance companies borrow from banks and other sources so their cost of funds are subject to more frequent changes.
Vibha Batra, senior vice-president and co-head at Financial Sector Ratings, said that several industry specific issues will need to iron out. “But it is a step that will encourage more transparency across the market.”
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