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C. Shivkumar

Bangalore , Oct. 19

HOUSING finance companies (HFCs) are likely to be permitted to tap provident funds (PF) and insurance companies to raise resources.

At present, most housing companies are restricted to raising funds only through equity or fixed deposits in the domestic market or through refinance support from the National Housing Bank.

Only the large housing finance companies such as Housing Development Finance Corporation and LIC Housing Finance have a diversified resource pool, including foreign currency resources in the form of foreign currency convertible bonds.

A draft document of the Ministry of Urban Employment and Poverty Alleviation, National Policy on Urban Housing and Habitat, has already suggested enlargement of the resource pool of the HFCs.

But not many HFCs are enthusiastic about raising long-term resources through external commercial borrowings (ECBs), though the draft policy guidelines suggested it. This was in view of the absence of any cost advantages. The Managing Director of Canfin Homes Ltd, Mr K. Venkataramiah, said, "There is no cost advantage in ECBs. They could be more expensive, if the hedging costs are included."

Long-term hedges are not available in the country. Hedges are available for only a period of one year.

Sources said that once the recommendations are accepted by the Government, the HFCs would have greater flexibility to raise diversified long-term resources. PFs and life insurers have a large appetite for long-term debt securities. However, these institutions are now allowed to invest only in designated or government securities. The proposed relaxation is expected to provide the HFCs with long-term resources.

In fact, one of the major problems faced by the HFCs was access to long-term resources. Especially as most of them raise resources for a maximum of 10 years with early exit options at the end of five years.

As a result, the HFCs faced with the problem of asset-liability mismatch. Refinance support is available from the National Housing Bank for up to 10 years at 7.25 per cent, though their lending is for longer periods, 15 to 20 years. Only those backed by institutions and banks have been able to overcome the asset-liability mismatch with additional refinance support.

But sources said that the HFCs were also constrained by capital to risk weighted asset ratios. Under the NHB guidelines, HFCs' capital, which includes paid-up equity and reserves, are expected to be at least nine per cent of their risk-weighted assets. This automatically imposed limits on their lending.

To comply with the ratios, the HFCs are allowed to securities their assets.

However, the mortgage backed securitisation market has still not picked up, which means that the HFCs are still left with the conventional resource pools.

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