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The National Housing Bank (NHB) has pressed housing finance companies and banks to lower home loan interest rates to pass on reduced borrowing costs to customers, industry sources said. NHB's managing director reportedly stressed the need for lenders to adjust prime lending benchmarks following significant decreases in funding costs. However, most mortgage lenders have indicated they will delay meaningful rate cuts until their internal benchmarks are reset in April, coinciding with scheduled annual reviews. A few lenders have initiated modest reductions in prime lending rates ahead of April, but the broader transmission of lower funding costs to existing borrowers remains limited. NHB's push reflects ongoing concern that the benefits of prior policy rate cuts and lower refinance rates have not been fully passed through to home loan customers.
The National Housing Bank (NHB) has urged housing finance companies (HFCs) and banks to lower home loan interest rates to better reflect reduced funding costs, but major lenders have largely opted to delay significant cuts until their internal benchmarks are reset in April, sources familiar with the discussions said. Advertisement
According to executives aware of recent conversations, NHB's managing director emphasised that lenders should transmit the benefits of lower borrowing costs to end users, particularly existing home loan borrowers. This push comes after cumulative reductions in key policy and refinance rates, including cuts in the Reserve Bank of India's repo rate and NHB's refinance windows over the past year. Despite these shifts, home loan interest rates particularly prime lending rates (PLR) have not adjusted proportionately, leaving many borrowers continuing to pay relatively higher rates.
Lenders have cited procedural reasons for postponing meaningful rate cuts, noting that most institutions align significant revisions with their scheduled annual reviews of internal benchmarks, which are expected to take place in April. Until these benchmarks are revised, many lenders are reluctant to make substantial changes to lending rates, even as funding costs and market conditions evolve.
While several mortgage lenders have already begun to respond to NHB's call with modest reductions, including marginal cuts in prime lending rates by some firms, the broader transmission remains limited ahead of the April reset. For instance, a few HFCs have trimmed their prime lending rate by 15 basis points, signalling early movement ahead of the benchmark revisions.
Industry executives said the NHB's intervention reflects concern that reduced funding costs from both the market and NHB refinance schemes have not been adequately passed on to borrowers. HFCs collectively account for a significant portion of the mortgage lending market, and their pricing decisions influence overall home loan affordability.
The delay in passing through lower lending rates highlights the structural lag between policy rate changes and retail lending pricing. Analysts noted that borrowers holding floating rate home loans may see the benefits of lower rates more visibly once internal benchmarks reset, potentially bringing down equated monthly instalments and overall borrowing costs after April.
Overall, NHB's push and lenders responses underscore the ongoing dynamics between monetary policy transmission, funding costs and home loan pricing in India's mortgage market.
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