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The RBI’s recent move permitting banks to issue long-term bonds to give loans for buying affordable homes will not hurt housing finance companies (HFCs), according to Vaithianathan Ramachandran, Managing Director, Tata Capital Housing Finance.
After the central bank came out with the regulations on long-term bonds for affordable housing and infrastructure, stocks of non-banking finance companies lending to these sectors took a hit on fears that cheaper cost of funds that banks will able to access may put NBFCs at a disadvantage.
While Ramachandran hopes that the housing finance regulator, the National Housing Bank, will also come out with a similar set of regulations for housing finance companies, the existing facility to allow HFCs above a certain size to raise funds abroad offers some amount of parity.
The NHB regulations allow HFCs with net-owned funds of over ₹300 crore to raise funds through external commercial borrowings. ECBs are typically cheaper compared to domestic funds. “Overall, the cost of such funds works out to 7.5-8 per cent after adding all the expenses,” according to Ramachandran.
Ramachandran said the subsidiary of Tata Capital will focus on lending more to the affordable housing segment this year because there is very good demand and also NHBs refinance facility comes in handy.
He said demand for houses in the ₹40-50 lakh segment is very good. Both first time buyers and second house investors are looking for houses in this price range.
The NHB provides refinance to HFCs giving affordable housing loan to borrowers at relatively cheaper rates.
At present, an affordable housing is defined as a house with value of ₹25 lakh or below. The same was recently changed to up to ₹65 lakh in metro areas and up to ₹50 lakh in non-metro areas for banks lending to such projects by using funds raised through long-term bonds.
Ramachandran expects a similar definition change for non-banking finance companies lending to affordable segment also.
“We plan to do affordable housing loans of about ₹1,000 crore this year (against ₹600 crore last year),” he added.
When asked if the definition change will prevent builders from building houses in the sub ₹30-lakh category, Ramachandran said, “In metro, you cannot imagine houses of value below Rs 50 lakh. “In non-metros also, for ₹40 lakh, they have to go to the outskirts. So, that way housing stock will not be affected.”
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