The norms for External Commercial Borrowings (ECBs) by housing finance companies (HFCs) are expected to get some leeway from the regulator so as to enable better flow of funds to the affordable housing projects.
"The all-in-cost (limit) should be more reasonable so that it can enable borrowers to access the ECBs at the rates prevailing in the international market," said RV Verma, chairman and managing director of National Housing Bank (NHB).
As per present norms, the Reserve Bank of India (RBI) allows ECBs within the spread of 350 bps for 3-5 years tenure and 500bps for more than 5 years tenure above the 6-months London Interbank Offered Rate. The ceiling was enhanced in November last year by RBI since companies were finding it difficult to raise funds within previous limits.
"It (limits) should not be too artificially low so that funds are not available at all at those rates," said Verma. He added that this will serve as a new avenue for HFCs to raise funds.
According to market participants, funds are available at a cheaper cost internationally when compared to those raised domestically. "Even if you hedge against the currency fluctuations, the all-in-cost will be lower by around 350-400bps," said a merchant banker with a foreign bank. The official added that there is room for further enhancing the spreads over LIBOR to attract funds.
In August, the government opened up the ECB route for HFCs to help them finance affordable housing projects. The guidelines on the same are expected in a fortnight. The guidelines will be finalized in a meeting between officials from the finance ministry, the RBI and NHB.
Final parameters on overall borrowing amount and eligibility criteria for both low-cost housing projects and retail housing projects will also be discussed in the meeting. Suggestions have been submitted by the industry players.
