National housing bank (NHB) is likely to raise refinance rates for housing finance companies (HFCs). The decision by the regulator of HFCs comes shortly after the policy rate hike by Reserve Bank of India recently.

"We have started the process of analysing the cost of fund situation. Though we are yet to take a call (on increasing the lending rates), there is an upward bias in the interest rate in the market," R V Verma, chairman, NHB said.

Rise in refinance rates would lead to increase in cost of funds for HFCs thereby implying a subsequent rise in home loan rates. The dependency of larger HFCs on refinance is much less than that of the smaller ones. Smaller ones which are dependent on refinance to the extent of 20-25%, would suffer a major rise in cost of funds from this rate hike.

The last time NHB had raised rates was 18 months back by 25 basis points. The present PLR of NHB is 10.25%.

"We haven't yet taken a call on increasing the interest rate. We are waiting to see how the market reacts," said V K Sharma, CEO, LIC Housing Finance Ltd.