RBI lending norm to benefit HFCs raise more funds: Gruh Fin

The Reserve Bank of India (RBI) on Wednesday eased some priority sector lending norms by expanding the reach of rural credit for banks. The banks are supposed to provide loans to sectors such as agriculture and housing for weaker sections of the society. According to the new rules bank loans to housing finance companies (approved by the National Housing Bank, the regulator for HFCs) for the purpose of refinance will now be considered as priority lending subject to an aggregagte loan limit of Rs 10 lakh per borrower.

Sudhin Choksey, MD of Gruh Finance feels the RBI initiative will certainly benefit the company as the funds flowing from the banks would now be considered for the priority sector. Hence, the avenues for raising more money from banks will increase, explained Choksey.
However, Choksey believes until and unless banks lend below the base rates, it will not prove to be a very inexpensive option for housing finance companies. Here is the edited transcript of the interview on CNBC-TV18. Q: From what I understand you can lend but with a 2 percent arbitrage. The point that the RBI has laid down for those loans to be classified as priority sector is that it should be less than Rs 10 lakh and with 2 percent cap on the arbitrage, how much will it impact your company?
A: I think it will certainly benefit significantly because our average loan is around Rs 7 lakh even on an incremental basis. I think the flow from the banking sector would come under the priority sector to us. Our options to raise money from the banking sector will increase. Q: How much are you factoring in terms of reduction in cost in terms of borrowing from banks because now you are priority sector?
A: We will have to see at what rate they would be willing to lend to us. They have put a cap as regards the beneficiary and what we can charge. We will have to see whether they will be willing to lend to us below the base rates or not. If they do not lend below the base rate then it might not prove to be a very inexpensive option. Unless and until the base rate moves, I think it all depends on what rate they will be lending to us.
_PAGEBREAK_ Q: Is there a likelihood of banks lending to you below the base rate and assuming if they don’t, what impact will this arbitrage cap of 2 percent have on your net interest margins. How much do you currently lend to below at these 7 lakh ticket prices to?
A: We credit score and link the pricing as far as the loans are concerned. It is a risk based pricing and we charge anywhere between 10.5 percent going up to 12.5 percent. I don’t think we are worried about the cap which they have put. I think that should not be a problem. I would be very happy if the banks would be willing to lend below the base rate as a priority sector and then it would be an attractive option for us. Q: How much are you expecting your disbursement and your loan assets to increase since they have now widened the scope of priority sector?
A: I think there was some confusion and some banks were willing to lend, some banks were not willing to lend but, it depends on the availability of fund. Just because the priority sector clarification has come it is not going to increase the volume of business as far as we are concerned. The volume of business will remain the same. We were raising more money from NHB or through the public deposit and other sources of finance. Now the banking sector would also be one more option available for us.