NHB, however, did not have anything to promise. A senior NHB official said the cost of funds for the apex housing finance institution has shot up since general interest rates on bank deposits have increased from around 6% a year ago to around 10% at present. Unless banks cut interest rates leading to reduction in the cost of funds for NHB, the refinance rates can't be cut, the official added.

Under refinance facility, NHB, which also regulates HFCs, provides a certain portion of loan disbursed by the HFCs to housing sector at a fixed rate. Though, NHB's contribution to the home loan portfolio is around 20%, refinance rates act as a benchmark for fixing home loan rates.

Following the rise in rates, HFCs are worried at rise in default cases in home loans that are on floating rates. A senior official of a public sector HFC said that in the first quarter of the current financial year, defaults have almost doubled when compared with the previous quarter. Normally, default cases rise in the first quarter, but this year the rise in interest rates has resulted in a further increase.

NHB will study the effect of interest rate rise on the default cases. In the last six months interest rates on floating rates rose by over 2.50 percentage points, which resulted in to increase in the equated monthly instalment by around 18% on a loan of 20 years. The official said that such rise in EMI affects the budget of individuals who has bought houses recently as mist buyers overstretched their budgets.