RBI and Government lock horns on HFC refinancing by banks

In what could be a letdown for refinance of housing finance companies by banks, the central bank has reversed its own directives by removing indirect priority sector lending clause for refinancing of housing finance companies' HFC debts by banks. The RBI has also reduced the ceiling for refinance.

The finance ministry had earlier provided some respite for specialized home loan companies by allowing banks to consider their refinancing of HFC as priority lending, and increasing the ceiling from Rs. 5 lakh to Rs. 10 lakh per home. This was done to promote affordable housing and increase lending to low income group.

But the RBI has tightened the norms for banks lending to finance companies, and keeping HFC refinancing out of priority lending regime.

Smaller HFCs get refinancing from banks at 10-11% per year.