Kotak Institutional Equities warns that the Reserve Bank of India’s proposed loan pricing reforms could restrict flexibility among large prime housing finance companies while accelerating transmission of bank rate changes to non-banking financial companies.
Kotak Institutional Equities says the Reserve Bank of India’s proposed overhaul of loan pricing could curb flexibility at large prime housing finance companies while speeding the pass-through of bank rate changes to non-banking financial companies.
In a note cited by The Hindu BusinessLine, the brokerage said the draft rules would weaken the current “PLR minus” structure used by some housing finance companies, under which loans can be sold at a discount to an internal prime lending rate. Under the proposed regime, floating-rate loans would have to be priced above the benchmark, which Kotak said could squeeze the room lenders have to offer lower rates to new customers without immediately changing terms for older borrowers.
Kotak argued that the effect would be greatest for larger prime housing lenders with thin spreads, especially in a falling-rate cycle. Affordable housing finance companies, by contrast, should feel less pressure because they typically lend at wider spreads over their funding costs. The brokerage also said the new framework would not make external benchmark-linked lending mandatory for non-banks and housing finance firms, easing some concerns about a forced shift.
The broader change could still matter for NBFCs, because many of their bank borrowings are linked to the marginal cost of funds-based lending rate and are often repriced only once a year. Kotak said the proposed three-month reset cycle could make bank lending rate cuts reach NBFCs more quickly. The RBI’s draft directions are expected to take effect from April 2027, with existing floating-rate loans due to move to the revised system by April 1, 2029. Separately, Kotak has warned that rising bond yields are already lifting NBFC funding costs, adding another layer of pressure on margins in FY27.
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