In a bid to make borrowing more affordable, RBI has announced a cut in its key policy rates following which Housing finance companies (HFCs) are planning to cut in their prime lending rates (PLRs).

Housing finance companies are considering the cut because the latest measures of RBI have reduced their costs of funds. The central bank has reduced the repo rate which has made general funds from banks cheaper and increased cap on loans granted by banks to HFCs for lending to individuals for the purpose of purchasing or constructing houses will also facilitate the flow of credit to HFCs.

In its latest measures announced on December 6th, RBI has increased the maximum value of loans granted to HFCs from banks. The limit has been raised from Rs 5 lakh to Rs 20 lakh and HFCs said that this step would reduce the interest rate on such loans.

The interest rate charged by banks for loans up to Rs 20 lakh lie around 12% to 15% in the current scenario but industry experts feel that this rate would now decline to around 10% thereby inducing HFCs to cut their PLRs by around 100 to 150 basis points from the present level of around 14% to 15%.

A special refinance facility amounting to Rs 4,000 crore has also been granted by the RBI to the apex mortgage regulator, the National Housing Bank (NHB).

Director and CEO of LIC Housing Finance, R Nair said, "Naturally, we would reduce our prime lending rates as we are expecting an instant fund flow at a cheaper rate, subsequent to the policy, which would lower our cost of funds."

Earlier the HFCs had refused to cut the home loan rates due to their high cost of funds which are said to reduce be by the latest measures announced by RBI.