Days after the Reserve Bank of India eased rules regarding external commercial borrowing, India’s largest mortgage borrowing company Housing Development Finance Corp is said to be taking advantage of it. The HDFC will reportedly upsize its foreign loan from $750 million to $1 billion as a response to the RBI’s latest move to ease external commercial borrowing rules. The funding costs will not change, the report said.
As per a report by the Economic Times, quoting people familiar with the matter, HDFC will upsize its foreign loan. The State Bank of India (SBI) will also join the syndication process, which has already seen a confirmed participation from Mizuho Bank, MUFG and Standard Chartered Bank, the report further said.
The proceeds from this process will be used by HDFC to enable buyers get low-cost and affordable home loans, it said. However, HDFC has not officially confirmed the news.
“Both the borrower and banks are discussing the matter, and the deal is closing now,” an executive involved in the exercise was quoted as saying by the Economic Times.
As per the report, the loan term has finally been fixed at three years. “The loan could be priced after adding about 115 basis points over the Secured Overnight Financing Rate (SOFR), a global rate gauge,” it added. HDFC’s decision comes at a time when the central bank last week also approved its merger with its twin, HDFC Bank.
The Reserve Bank on July 6 added a host of measures to diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers and address the rupee’s fall against the dollar. Under the measures taken, the RBI also announced additional space for companies exploring loan markets abroad, by raising the limit on external commercial lending.
“It has now been decided to temporarily increase the limit under the automatic route from US$ 750 million or its equivalent per financial year to US$ 1.5 billion. The all-in cost ceiling under the ECB framework is also being raised by 100 basis points, subject to the borrower being of investment grade rating. The above dispensations are available up to December 31, 2022,” said the RBI in its notification. Currently, the all-in cost ceiling is capped at 500 basis points, with 100 basis points being 0.1 per cent.
Under the automatic ECB route, eligible borrowers are allowed to raise funds through their AD banks, without approaching the RBI, as long as the borrowing is in conformity with the prudential parameters of the ECB framework such as all-in cost ceiling, minimum maturity requirements and the overall dynamic ceiling. HDFC will benefit from the decision as the company sees severe demand for home loans, which in turn raises the need to have more borrowing resources.
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