The Hindu Business Line : RBI sets loan rate cap for HFCs at Libor+ 200 bps

Mumbai, Nov. 17 Even as the Reserve Bank of India has allowed housing finance companies (HFCs) to raise short-term foreign currency borrowings, the interest rate ceiling set is too low, which would make it very difficult to borrow, said officials from HFCs.

On Monday, RBI released detailed guidelines for HFCs to raise short-term foreign currency borrowings under the approval route. According to the guidelines, the all-in-cost ceiling should not exceed six months Libor plus 200 basis points and the borrowings should be fully swapped into rupees for the entire maturity.

However, a senior official from a leading housing finance company said in the current scenario it will not be feasible to raise money at these prices, as the interest rate ceiling is too low.

Guidelines

According to the guidelines, the overseas borrowing can be used only for refinancing the short-term liabilities and no fresh assets should be booked out of the resources.

The borrowing maturity should not exceed three years and the amount should not be more than $10 million (or its equivalent) or 50 per cent of the net-owned fund, whichever is higher, said RBI.

HFCs can raise resources only from multilateral or bilateral financial institutions, reputed regional financial institutions and foreign equity holders with minimum direct equity holdings of 25 per cent.

HFCs complying with capital adequacy norms and other prudential norms laid down by the National Housing Bank are eligible to borrow overseas, said RBI.