LIC Housing Finance (LICHFL) proposes to pre-pay high cost debt to the tune of Rs 1,000 crore in the current financial year to reduce its cost of funds from last year's level of 12 per cent to 11.7-11.8 per cent. LICHFL also proposes to tap retail deposits once rating agency Crisil rates its deposit system.
Historical borrowings at high interest rates from Life Insurance Corporation of India, LICHFL's parent body, and National Housing Bank to the tune of Rs 1,500 crore in the mid 90s, have resulted in the firm's cost of funds zoom to 12 per cent.
Director and chief executive officer Kranti Sinha said that the company was "negotiating with LIC and NHB to pre-pay the high debts taken at 13 to 13.5 per cent interest".
By decreasing its high cost borrowings by Rs 1,000 crore, LICHFL will save interest outgo to the tune of Rs 18-20 crore, and "bring down the cost of funds to 11.7 to 11.8 per cent", Sinha said. The housing finance company could not do it sooner on account of the limitation of there being "no call or put option in the case of these loans. We needed to use our persuasion powers," he pointed out.
LICHFL for the current fiscal proposes to raise Rs 1,200-1,300 crore from the market, against last year's borrowings of Rs 900 crore. This is in keeping with the firm's disbursement target of Rs 2,300 crore for the fiscal, against last year's actual disbursement of Rs 1,700 crore, Sinha said.
"We do not intend to tap the market immediately as we anticipate that interest rates will come down by August-September," he said.
However, the total direct borrowings from the market could be less this year in view of LICHFL's plans to tap the retail deposits route to bring down its cost of funds. The company is awaiting Crisil's rating. The rating agency had rated two of the company's securitisation instruments as AAA last year, Sinha stated.
"The retail route will give the company dual advantage in terms of a wider client base, as depositors can also be out future clients as well as the fact that this will be a cheaper source of funds," said Sinha.
