The National Housing Bank (NHB) has declared to lend to the housing finance companies (HFCs) at 8%, thereby passing on the benefits of its Rs 4,000-crore refinance package.

This subsidized interest rate is applicable to loans up to Rs 20 lakh and tenure of the loan will be reviewed on a case-by-case basis depending on each HFC. "The disbursement pattern and the tenure of loan will depend on the requirement of each HFC. A circular regarding this will be issued shortly by NHB," said a top official of NHB.

NHB informed that once an HFC avail such a loan it can charge any interest rate while lending these loans further but officials expect the interest rate to be low due to the falling cost of funds. The official said, "Since the cost of funds for HFCs is expected to come down, the general benefit of the lower cost should be passed on to borrowers."

However NHB has made its monitoring process strict and added a new monthly report format to the process. The new format prescribes that each HFC need to provide its monthly details about the borrowing pattern, asset-liability mismatches and different sources of funding to apex regulator.

Even the average cost linked to different borrowing instruments along with respective rating of each instrument are asked to be provided at the end of every month. An executive with NHB informed that, "There are new items that have been included in the new format. This will allow NHB for a real-time supervision as access to more dynamic information about the industry will be available." Earlier HFCs were required to provide these details once in a year.

Recently RBI has relaxed norms related to the housing sector external commercial borrowing (ECB) and foreign currency convertible bonds (FCCB) to induce the sector to provide cheaper funds. Hence these tightened measures will help NHB to track a record of how the funds knocked through these routes are being used. "It enables assessment of impact of the changing environment conditions on the finances of HFCs and results in better supervisory interventions thereafter," said the executive.

Meanwhile sources have also reported that NHB is asking for a monthly report in order to check on the end use of the fund. "Every HFC is complaining about high cost of funds and demanding cheaper refinance. To address these issues, the regulator must be sure about the effective utilization of funds," he said.

"After the global crisis, the monitoring measures are being tightened and implemented with more intensity, particularly for sensitive sectors like housing," he added.