Housing finance firms permitted to raise funds through external commercial borrowing

MDT/PTI 23 August 2012

The high level committee on external commercial borrowings which met last evening also permitted FIIs to invest up to $5 billion in rupee bonds within the overall corporate bond limit of $45 billion

New Delhi: Liberalising overseas borrowing norms, the government on Wednesday allowed housing financing companies to raise funds through external commercial borrowings (ECBs) route to finance low-cost housing projects.

The high level committee on external commercial borrowings which met last evening also permitted foreign institutional investors (FIIs) to invest up to $5 billion in rupee bonds within the overall corporate bond limit of $45 billion.

Also, the Small Industries Development Bank of India (SIDBI) has been made as “an eligible borrower” for accessing ECB route for on-lending to the micro, small and medium enterprises (MSME) sector.

“It has been decided that entities like National Housing Bank (NHB) and Housing Finance Companies (HFCs) will be included as eligible borrowers for financing such low-cost housing projects,” was said in a finance ministry statement.

The decision to allow NHB and HFCs raise the external commercial borrowings comes in the backdrop of shortage of housing for low income groups in major cities and towns.

ECBs are considered attractive as cost of raising the loan is lower than that of domestic borrowings. Besides, they provide an additional avenue to access large amounts of funds from global financial markets.

In another major decision, the committee also enhanced the limit for ECB for infrastructure and manufacturing sector companies to refinance their existing rupee loans.

The finance ministry further said refinancing of buyer’s credit for import of capital goods in the infrastructure sector will be placed under automatic route.

It has also been decided to increase the maturity of such buyer’s credit to maximum five years, it added.

It further said that foreign entities will be allowed to credit enhance the issue of rupee bonds by all companies. The minimum maturity period of such bonds has also been reduced from seven years to three years.

Finance minister P Chidambaram, on 6 August 2012, had unveiled a roadmap to boost investment and economy by fine-tuning policies to put in place a stable and non-adversarial tax regime.

Under a new scheme in June, the government had allowed infrastructure and manufacturing sectors companies to refinance their existing rupee loans through ECBs.

The committee decided to enhance the maximum permissible limit for ECB that can be availed by such companies from 50% to 75% of the average forex earnings realised during the past three financial years, or 50% of the highest forex earnings in any of the last three years.

“It has also been decided to include special purpose vehicles (SPVs) of companies who are in existence for at least one year under the ambit of this scheme,” the ministry added.

The decision to allow SIDBI raise funds through ECBs would help the MSME sector. The sector has been complaining that it does not get access to affordable credit as banks prefer to lend to large companies.

The ministry said SIDBI would be allowed to raise ECB subject to certain conditions which will be finalised in consultation with the Reserve Bank of India (RBI).

Mr Chidambaram, on 18 August 2012, had asked the Indian Bankers Association (IBA) to form a committee to advise the government on tackling the slowdown in the housing demand.

According to the Confederation of Real Estate Developers’ Association of India (CREDAI), an apex body of the organised real estate developers, funding gap in housing will be around $70 billion in the next five years.

Comments