MUMBAI: Sanjay Shukla, the managing director of the National Housing Bank (NHB), recently urged major home financiers to lower prime lending rates in a discussion with key industry players, as reported by RealtyDailyNews. However, mortgage lenders have postponed any rate cuts until their annual internal benchmarks are reassessed in April.
“During our call, the NHB chairman stressed the need for the ecosystem to transmit lower rates to borrowers, asserting that the advantages of reduced borrowing costs haven’t reached existing clients,” stated the CEO of a major housing finance company (HFC). “While HFCs are securing funds at significantly lower market rates, they continue to apply higher rates to current borrowers.”
HFCs currently control about 20% of India’s mortgage lending market, which is primarily dominated by traditional banks.
Historically, HFCs set high prime lending rates (PLR) but offer substantial discounts to consumers. For example, LIC Housing Finance’s home loan rates start at 7.15%, despite a PLR of approximately 17%. HFC lending rates typically include borrowing costs, risk premiums, operational expenses, and profit margins.
The NHB has noted that, despite a cumulative reduction of 125 basis points in the central bank repo rate over the last year, bringing it to 5.25%, and NHB refinance rates near 7%, the decline in funding costs has yet to be adequately relayed to existing borrowers.
“Many HFCs anticipate a more significant drop in lending rates following the MCLR reset in April,” said the CEO of another housing finance firm.
In response to the NHB’s pressure, some lenders have begun to lower rates. For instance, Aadhar Housing Finance has reduced its retail PLR by 15 basis points to 17.50%, effective February 10, 2026, while Aavas Financiers has also announced a similar cut to 17.80% starting March 1, 2026.
Although the central bank took over as the main regulator of HFCs in 2019, the NHB continues to be a crucial supervisory and developmental entity, conducting on-site inspections and providing vital refinancing, thereby wielding considerable influence over the sector.
As of March 2025, the outstanding loans and advances of HFCs amounted to ₹9.59 lakh crore, slightly down from ₹9.61 lakh crore the previous year, according to central bank data. The share of HFCs in total housing credit, spanning banks, HFCs, and NBFCs, dropped to 18.8% by the end of March 2025, partially due to the conversion of two HFCs into NBFCs. Housing loans constituted 73.8% of overall credit extended by HFCs at that time.
