Housing finance firms set to tap ECB market

Last year HDFC, LIC Housing Finance and Dewan Housing Finance had applied for raising money through ECBs

After the Reserve Bank of India (RBI) revised the norms for external commercial borrowings (ECBs) last week, Housing finance companies (HFCs) are all set to raise money through ECBs for affordable housing projects.

“We have received an application from HDFC,” said R V Verma, chairman, National Housing Bank (NHB), the regulator for HFCs. “We are expecting more applications.” NHB hopes $1 billion ceiling will be fully utilised.

Last year, RBI had allowed HFCs and builders to raise ECBs for affordable housing projects. However, RBI did not clear any applications as the ECB norms were under review. HDFC, LIC Housing Finance and Dewan Housing Finance had applied for raising money through ECBs last year.

The depreciation of the rupee has given HFCs one more reason to smile. Keki Mistry, vice-chairman and CEO of HDFC, said: “When the rupee depreciates, we actually get more money in rupee terms. The issue of when to borrow and how much to borrow is a question of swap rates.”

According to him, though the overall cost has gone up a bit, ECBs still make attractive proposition for HFCs. “Even after factoring in hedging cost, it still makes attractive for HFCs,” said Mistry.

V K Sharma, managing director and CEO of LIC Housing Finance agreed. “At present, we are getting money at 9 per cent from the market. So even if we get at 9 or 9.25 per cent on fully hedged basis, it is worth going for,” said Sharma.  LIC Housing Finance will also tap the ECB route, he added.

The housing regulator, however, sounded a note of caution. “They have to time their borrowings in such a way that they get more effective cost and enter the market at a time when hedging cost is more efficient,” said NHB chairman Verma.

According to LIC HFL’s Sharma, hedging cost would be lower now since the rupee has depreciated and it is not expected to depreciate much further. “We will take a call on hedging cost when we get approval, because it varies time to time and fluctuate a lot,” said Mistry.