RBI eases ECB norms, paves way for low cost home projects

Moneycontrol Bureau

The Reserve Bank of India (RBI) on Monday eased fund raising norms through external commercial borrowing (ECB) route for the low cost affordable housing projects. Both housing finance companies (HFCs) and developers are the direct beneficiaries while home buyers too will enjoy their share in terms of concessional interest rates and better availablity of low cost homes.

HFCs can now mop up cheap funds to lend at concessional rates. Developers/builders too can avail such funds via ECB route and will be encouraged to promote low cost housings. Millions of low-income Indian families still struggle to buy their own homes due to lack of affordability.

Builder experience eased

"Developers/builders should have a minimum of three years experience in undertaking residential projects as against five years prescribed earlier and should have good track record in terms of quality and delivery," RBI said in a notification.

No bar for paid-up capital of HFCs

The central bank also revoked the benchmark of minimum paid-up capital of HFCs to get ECB funding. Earlier, it was "not less than Rs 50 crore" as per the latest audited balance sheet for those companies. However, the condition of the minimum net owned funds (NoF) of Rs. 300 crore for the past three financial years remains unchanged.

ECB limit extended

"The aggregate limit for ECB under the low cost affordable housing scheme is extended for the financial years 2013-14 and 2014-15 with a ceiling of USD 1 billion in each of the two years, subject to review thereafter," RBI said.

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Impact

Those steps, no doubt, will expand the reach of affordable housings. More HFCs will be able to fund such projects wherein home buyers can also get cheap credit from lenders. The relaxation on developers' experience criteria is expected to encourage more builders to get into affordable housings. Currently, the number of low cost housings is not adequate. In coming days, you can expect some activities in this residential segment.

Support to falling rupee

According to the RBI, the ECB availed of by developers and builders shall be swapped into rupees for the entire maturity on fully hedged basis. This move would bring some support to the tumbling Indian rupee against the US dollar. The conversion from (majorly) dollar to rupee will bring in some inflows giving strength to the local currency against the greenback. It had slumped to record low of 59.98/USD on June 20.

Also read: ANALYSIS: Here's how NDF factor works for rupee/dollar rate

Yardstick for affordable housing

While applying for ECBs, HFCs will have to adhere to certain prescribed norms which qualify under the scheme of affordable housings. Some of those are:

• To submit a certificate from NHB, the nodal agency, that the availment of ECB is for financing prospective owners of individual units for the low cost affordable housing;
• To ensure that cost of such individual units does not exceed Rs. 30 lakh and loan amount does not exceed Rs. 25 lakh;
• To ensure that the units financed are having maximum carpet area of 60 square metres.

saikat.das@network18online.com