Reprieve for HDFC on capital mkt norms

NHB likely to give HDFC two more years for compliance

India’s largest mortgage financing company, Housing Development Finance Corporation (HDFC), is likely to get a reprieve on its breach of capital market exposure limits.

The National Housing Bank (NHB), which regulates housing finance companies (HFCs), is likely to give HDFC two more years to comply with the capital market exposure norms.

“There are some minor issues to be sorted out, after which an extension will be granted,” a senior NHB official said. The current deadline for HDFC to pare its capital market exposure is December 31, 2009.

According to regulations, an HFC is not permitted to have an aggregate exposure to capital markets (both fund and non-fund based) in excess of 40 per cent of its net worth as of March 31 of the previous year. Within the overall ceiling, direct investments in shares, convertible bonds and debentures, units of equity-oriented mutual funds and all exposures to venture capital funds should not exceed 20 per cent of the company’s net worth.

HDFC’s consolidated net worth as of 31 March 2009 was Rs 23,713 crore.

HDFC’s high capital market exposure is primarily on account of its promoter shareholding in India’s second-largest private sector lender, HDFC Bank. However, the mortgage lender’s shareholding in HDFC Bank has been rising rather than falling. As of September 30, 2009, HDFC held a 19.29 per cent stake in HDFC Bank. The mortgage lender’s stake in the bank rose to 23.8 per cent this month following a conversion of warrants.

The warrants were issued to HDFC in June last year during the merger of HDFC Bank with Centurion Bank of Punjab, to allow the mortgage lender to maintain its shareholding in the merged entity.