RBI central board member Nachiket Mor on Thursday suggested the National Housing Bank (NHB) should work on a benchmark index for floating interest rates in housing loans in consultation with the industry.
Such an index could also result in the evolution of a derivative market based on it, he said, adding, that the index should be customer-focused.
“Currently, there is no such benchmark index. All players have their own internal benchmarks,” he said, indicating the need for transparency, uniformity and standardisation in the rates, leading to more clarity for customers.
If the NHB develops such an index, it could lead to the housing regulator having a larger role, where even banks with floating interest rate home loan products may be prompted to follow it.
At present, HFCs have different floating rates linked to their own prime lending rate, which the borrowers may not be aware of.
“Imagine if floating rates touch as high as say 19% and the customer is unable to pay such interest amounts,” Mor said.
It is important for lenders to be able to justify to the NHB as to why floating rates are better for some customers and why it was offered to them and whether due process was followed.
Mor was speaking at a function where a report titled ‘Scaling up Housing Mirco-finance’, based on a study by NHB, IFMR Capital and Ukaid, was released.
On Mor’s suggestion, NHB chairman and MD RV Verma said it was a long-term vision.
Currently, the HFC market is very skewed with players ranging from those with very big balance sheets to marginal players. The companies have different products based on their cost of funds, which are also varied.
“Therefore, to accommodate all of them in the same index will not be possible immediately. The industry has to be developed to a certain level where there are many players of more or less the same size, following which such an index can be developed,” Verma added.