After the days of the Reserve Bank India Housing Development Finance Corp, India’s largest mortgage lender, is said to be taking advantage of the easing of norms on external commercial borrowing. HDFC Will increase its external debt from $750 million to $1 billion as a response to the recent RBI move external commercial borrowing rules, The cost of funding will not change, the report said.
According to a report in Economic Times, quoting people familiar with the matter, HDFC will increase its external debt. The report further said that State Bank of India (SBI) will also be involved in the syndication process, with the participation of Mizuho Bank, MUFG and Standard Chartered Bank already confirmed.
The proceeds from this process will be used by HDFC to enable buyers to avail low cost and affordable home loans. However, HDFC has not officially confirmed this news.
“Both the borrower and the bank are discussing the matter, and the deal is now closing,” Economic Times quoted an executive involved in the exercise as saying.
According to the report, the loan tenure has finally been fixed at three years. “The loan price could be higher after adding about 115 basis points to the Secured Overnight Financing Rate (SOFR), a global rate gauge,” it added. HDFC’s decision comes at a time when the central bank last week approved the merger with its twin HDFC Bank.
The Reserve Bank on July 6 added a slew of measures to diversify and expand sources of forex funding to reduce volatility and reduce global spillovers and to address the rupee’s depreciation against the dollar. As part of the measures taken, RBI also announced additional space for companies exploring debt markets abroad, by raising the limit on external commercial borrowings.
“It has now been decided to temporarily increase the limit under the automatic route from US$ 750 million or its equivalent to US$ 1.5 billion per financial year. The overall cost ceiling under the ECB framework is also being raised by 100 basis points, provided the borrower is of investment grade rating. The above relaxations are available till December 31, 2022,” RBI said in its notification. Currently, the total cost cap 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 RBI, as long as the lending is in line with prudential parameters of the ECB framework such as overall cost ceiling, minimum maturity requirements. and the overall dynamic ceiling. HDFC will benefit from this decision as the company is seeing huge demand for home loans, which in turn increases the need for more borrowing resources.
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