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NHB, the regulator for HFCs has advised companies to stop charging pre-payment penalty
on all floating rate loans and also to charge a uniform floating rate to old and new customers.
In general, this will impact profitability and create challenges on asset-liability maturity
management.
NHB - No pre-payment penalty, uniform floating rate for old and new customers
NHB (National Housing Bank), the regulator for Housing Finance Companies (HFCs) has
issued regulations to 1) not charge any pre-payment penalty in case of floating rate loans
(pre-closed through any source including re-finance), 2) not charge any pre-payment
penalty in case of fixed rate loans if the loan is pre-closed by the borrower out of their
own sources (i.e. penalty can be levied if the loan is being re-financed)
Further, HFCs have been advised to charge uniform rate of interest to old and new
borrowers, with the same credit / risk profile irrespective of the time of entry of the
borrowers in the market.
Impact analysis - Spreads and asset-liability maturity management
We believe the above changes will have the following impact 1) marginally impact
earnings due to absence of pre-payment penalty, 2) create challenges on asset-liability
maturity management, 3) it seems that this will be applicable only on incremental
business as it will be difficult to re-price existing customers as they are on a contractual
basis.
We expect that similar regulations (as above) will be issued by RBI for banks, in the near
future.
HDFC Limited (Buy) does not charge pre-payment penalty (about 2%) in case of pre-payment
by the borrower from own sources (ie. if the loan is not re-financed). At this stage, we are
unable to assess the financial impact of above regulations. However, we believe, HFCs will
price incremental loans at a higher rate to offset the risk of pre-payment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NHB, the regulator for HFCs has advised companies to stop charging pre-payment penalty
on all floating rate loans and also to charge a uniform floating rate to old and new customers.
In general, this will impact profitability and create challenges on asset-liability maturity
management.
NHB - No pre-payment penalty, uniform floating rate for old and new customers
NHB (National Housing Bank), the regulator for Housing Finance Companies (HFCs) has
issued regulations to 1) not charge any pre-payment penalty in case of floating rate loans
(pre-closed through any source including re-finance), 2) not charge any pre-payment
penalty in case of fixed rate loans if the loan is pre-closed by the borrower out of their
own sources (i.e. penalty can be levied if the loan is being re-financed)
Further, HFCs have been advised to charge uniform rate of interest to old and new
borrowers, with the same credit / risk profile irrespective of the time of entry of the
borrowers in the market.
Impact analysis - Spreads and asset-liability maturity management
We believe the above changes will have the following impact 1) marginally impact
earnings due to absence of pre-payment penalty, 2) create challenges on asset-liability
maturity management, 3) it seems that this will be applicable only on incremental
business as it will be difficult to re-price existing customers as they are on a contractual
basis.
We expect that similar regulations (as above) will be issued by RBI for banks, in the near
future.
HDFC Limited (Buy) does not charge pre-payment penalty (about 2%) in case of pre-payment
by the borrower from own sources (ie. if the loan is not re-financed). At this stage, we are
unable to assess the financial impact of above regulations. However, we believe, HFCs will
price incremental loans at a higher rate to offset the risk of pre-payment.
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