The Reserve Bank of India proposes reforms to loan pricing rules that could limit the flexibility of major non-banking finance companies and housing finance firms, signalling a shift towards greater sector discipline and transparency.
The Reserve Bank of India’s proposed overhaul of loan pricing rules could curb the ability of larger non-banking finance companies and housing finance companies to tweak floating-rate spreads at will, a change that may reduce their pricing flexibility even as it brings more discipline to the sector.
According to the draft framework, lenders would need a board-approved method for setting spreads that spells out the credit-risk premium, operating costs, tenor premium and any business-strategy premium. Spread elements other than the credit-risk portion would generally be frozen for the first three years, although base-layer NBFCs would be exempt from that restriction.
Analysts cited by Business Standard said the proposal could be mildly negative for middle- and upper-layer NBFCs and HFCs because it would limit how often lenders can adjust margins on loans linked to internal benchmarks. The shorter reset cycle of up to three months could also hasten the pass-through of changes in lending rates, while the rules would leave external benchmark-linked lending optional for NBFCs.
Kotak Institutional Equities said the new structure could be particularly awkward for large prime housing finance firms that rely on internal prime lending rates and “PLR minus” discounts to compete on home loans. Moneycontrol reported that the pressure may be greatest for lenders such as LIC Housing Finance and Bajaj Housing Finance, while affordable housing finance companies are seen as less exposed because they already operate with wider spreads. The draft is meant to improve transparency and standardisation rather than force every NBFC into external benchmark-linked pricing, and it is slated to take effect from April 2027, with existing loans given time to migrate by April 2029.
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