The Hindu Business Line : Tough to raise funds abroad, say housing finance cos

Mumbai, Nov. 19 Housing Finance Companies (HFCs) may well nigh find it impossible to raise short- term foreign currency borrowings at the Reserve Bank of India (RBI) prescribed interest rate ceiling of six months Libor plus 200 basis points in view of the precarious liquidity position of overseas lenders.

Further, the fact that the global financial meltdown originated in sub-prime mortgage crisis could make overseas institutions wary about lending to domestic HFCs, which are also in the business of mortgage lending, feel HFC players and forex loan originators.

Market reality

Mr R. R. Nair

“On the face of it the RBI measure looks attractive, but the market reality is totally different. Post-the RBI announcement, we got in touch with a couple of foreign banks to check out the possibility of raising overseas funds. Unless the RBI revises the interest rate ceiling, the relaxation will probably remain only on paper,” said Mr R .R. Nair, Director and Chief Executive, LIC Housing Finance.

In the current scenario, Mr Nair felt that borrowing even at Libor plus 500 basis points would be difficult. HFCs will need to take up this matter with their regulator, the National Housing Bank, he added.

Based on the RBI criteria that HFCs cannot borrow more than $ 10 million (or its equivalent) or 50 per cent of the net owned fund, LIC Housing Finance can borrow about Rs 1,000 crore. According to Mr Nair, this will suffice for about a month, given that the outgoing, including fresh disbursement, maturing and closing of loans, for a month is about Rs 1,000-1,500 crore.

If LICHF does borrow, then yen would be the most appropriate currency, Mr Nair said.

Differential treatment

Mr Kapil Wadhawan

Mr Kapil Wadhawan, Vice Chairman & Managing Director, Dewan Housing, too felt that it would be difficult for HFCs to borrow at the RBI prescribed interest rates.

“Capital is scarce and there is too much demand. It will be extremely difficult to raise foreign currency resources at Libor +200 basis points. It is too restrictive. The RBI should have treated us on par with other entities for raising resources via ECBs. Why set a three-year window and insist on borrowing from bilateral institutions? Obviously, we are looking to mop up funds from wherever we can. As a housing finance company, we need ready flow of capital and debt,” said Mr Wadhawan.

As per the RBI criteria, Dewan Housing can raise up to approximately Rs 225 crore ($45 million), which is far less considering the growth, he said.

“The entire global credit crisis started due to sub prime mortgages which in turn led to liquidity issues. This led to global banks requiring capital infusion and paring of counterparty limits between financial institutions to survive.

Though the opening of ECBs to housing finance companies is a good measure, it remains to be seen if international lenders would want to finance mortgage finance companies in these times,” said Mr Joiel Akilan, Chief Representative of Spain-based BBVA.

In view of the global tightness in liquidity, global banks inclination to cut exposure and prune their balance sheet, it would indeed be a “challenge” for Indian HFCs to raise foreign currency resources at the RBI prescribed interest rate ceiling.