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lenders: Higher ECB limits no help to mortgage lenders

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lenders: Higher ECB limits no help to mortgage lenders

Mumbai: For mortgage lenders witnessing strong growth, the Reserve ‘s easing of overseas borrowing limits is of little help as historical restrictions on end use and, more importantly, demand for higher yields by overseas investors make external borrowing unviable for them.

The necessity of an investment grade credit rating to tap the overseas market is also a hindrance as none of the housing finance companies (HFCs) have an international rating on par with India’s BBB- sovereign rating.

“Informally, we have asked the RBI whether they need a domestic or an international investment grade. Companies like us have a domestic investment grade rating, but not an international one,” said Gagan Banga, CEO of


“But more than anything it is the negative sentiment on the real estate segment due to events in China which have made global investors wary of investing,” he added.

Banga was referring to the problems in China’s real estate market after the default of Evergrande last December. The crisis has since spread to other developers and is now threatening to engulf the mortgage market with some borrowers refusing to pay their monthly instalments.

The Chinese crisis also has ramifications for bond issuers from India as that country dominates the overseas bond market.

Then there are also long-standing local issues to contend with, particularly an RBI rule that said more than half of the money raised overseas has to be used to lend to projects which have units that conform to the affordable housing category.

“These rules are not new. They have been there for a long time. But the real deal is investors are unwilling to put money into Indian paper when things are not the best. Till that changes, RBI’s easier norms won’t help,” said an investment banker who covers debt capital markets.

Last week the RBI doubled the total amount a company can borrow via the external commercial borrowing (ECB) mechanism under the automatic route to $1.5 billion.

The all-in cost ceiling under the ECB framework was also raised by 100 basis points to 600 basis points subject to the borrower being of investment grade rating. The new rules are in force till December 31.

One basis point is 0.01 percentage point.

Housing Development Finance Corporation (HDFC), practically the only mortgage financier that has both the rating and capacity to raise funds from abroad, is upsizing its foreign loan to around $1 billion from $750 million earlier, after the RBI relaxation, as ET reported on July 11.

Banga from Indiabulls said even if all approvals and processes are in place, raising money through a bond sale overseas is fraught with uncertainty as yields could skyrocket for factors beyond anyone’s control.

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