NHB pushes for lower home loan rates, lenders delay cuts till April

Mumbai: The National Housing Bank (NHB) managing director, Sanjay Shukla, had urged large home financiers to reduce prime lending rates during a call with their decision-makers about a fortnight ago, executives aware of the discussions told ET. But the mortgage lenders have deferred lending rate cuts until their internal benchmarks, due for annual reviews, are reset in April.

“In the call with us, the NHB chairman put considerable pressure on the ecosystem to transmit lower rates to end customers, as they believe the benefit of reduced borrowing costs has not been passed on to existing borrowers,” said the chief executive of a large housing finance company (HFC). “The NHB’s view is that while HFCs are raising funds at significantly lower rates-from the market, banks and NHB refinance schemes-they continue to charge relatively higher rates to existing borrowers.”

HFCs collectively own about a fifth of India’s mortgage lending market, now dominated by mainstream banks.

Traditionally, HFCs maintain high prime lending rates (PLR) but offer steep discounts to customers. For instance, while LIC Housing Finance‘s home loan rates currently start at 7.15%, its PLR is around 17%. HFC lending rates typically factor in the cost of borrowing, risk premium, operating costs and profit margins.

NHB has flagged that despite a cumulative 125 basis point reduction in the central bank repo rate over the past year to 5.25% and NHB refinance rates near 7%, the sharp fall in funding costs has not been adequately transmitted to existing borrowers.

“Several HFCs have argued that there will be a more meaningful downward movement in lending rates once the MCLR reset happens in April,” said the CEO of another housing finance company.

That said, some lenders have begun responding to the NHB’s nudge. Aadhar Housing Finance cut its retail prime lending rate by 15 basis points to 17.50% from 17.65%, effective February 10, 2026. Aavas Financiers also announced a 15-basis-point reduction in its PLR to 17.80%, effective March 1, 2026.While the central bank became the primary regulator of HFCs in 2019, the NHB continues to play a significant role as a supervisory and developmental institution. It conducts on-site inspections of HFCs and serves as a key refinance provider, giving it considerable influence over the sector.

As of end-March 2025, outstanding loans and advances of HFCs stood at ₹9.59 lakh crore, marginally lower than ₹9.61 lakh crore a year earlier, central bank data showed.

The share of HFCs in total housing credit-across banks, HFCs and NBFCs-declined to 18.8% at end-March 2025, partly due to the conversion of two HFCs into NBFCs. Housing loans accounted for 73.8% of the total credit extended by HFCs at the end of March 2025.