Liberalising overseas borrowing norms, the government today allowedhousing financing companies to raise funds through external commercialborrowings (ECBs) route to finance low-cost housing projects.
The High Level Committee on External Commercial Borrowings
which met here, also permitted FIIs to invest up to USD five billion in rupeebonds within the overall corporate bond limit of USD 45 billion.
Also, the Small Industries Development Bank of India (SIDBI) has been made as"an eligible borrower" for accessing ECB route for on-lending to theMicro, Small and Medium Enterprises (MSME).
"It has been decided that entities like NHB and HFCs will be included aseligible borrowers for financing such low cost housing projects," a FinanceMinistry statement said.
The decision to allow NHB (National Housing Bank and HFCs (Housing FinanceCompanies) raise ECBs comes in the backdrop of shortage of housing for lowincome groups in major cities and towns.
ECBs are considered attractive as cost of raising the loan is lower than thatof domestic borrowings. Besides, they provide an additional avenue to accesslarge amounts of funds from global financial markets.
In another major decision, the committee also enhanced the limit for ECB forinfrastructure and manufacturing sector companies to refinance their existingrupee loans.
The Finance Ministry further said refinancing of buyer's credit for import ofcapital goods in the infrastructure sector will be placed under automaticroute.
It has also been decided to increase the maturity of such buyer's credit tomaximum five years, it added.
It further said foreign entities will be allowed to credit enhance the issue ofrupee bonds by all companies. The minimum maturity period of such bonds hasalso been reduced from seven years to three years.
Finance Minister P Chidambaram on August 6 had unveiled a roadmap to boostinvestment and economy by fine-tuning policies to put in place a stable andnon-adversarial tax regime.
Under a new scheme in June, the government had allowed infrastructure andmanufacturing sectors companies to refinance their existing rupee loans throughECBs.
The committee decided to enhance the maximum permissible limit for ECB that canbe availed by such companies from 50 per cent to 75 per cent of the averageforex earnings realised during the past three financial years, or 50 per centof the highest forex earnings in any of the last three years.
"It has also been decided to include SPVs (Special Purpose Vehicles) ofcompanies who are in existence for at least one year under the ambit of thisscheme," the Ministry added.
The decision to allow SIDBI raise funds through ECBs would help the MSMEsector. The sector has been complaining that it does not get access toaffordable credit as banks prefer to lend to large companies.
The Ministry said SIDBI would allowed to raise ECB subject to certainconditions which will be finalised in consultation with the Reserve Bank ofIndia.
Last Saturday, Finance Minister P Chidambaram had asked Indian BankersAssociation (IBA) to form a committee to advise the government on tackling theslowdown in the housing demand.
According to Confederation of Real Estate Developers' Association of India, anapex body of the organised real estate developers, funding gap in housing willbe around USD 70 billion in the next five years.