HDFC plans to raise yen loan

HDFC, the country’s largest housing finance company (HFCs), has said that it is keen to raise funds overseas and is awaiting further details of the Reserve Bank
of India’s (RBI) guidelines.On Saturday, RBI had said that it would allow HFCs to raise short-term borrowings overseas as a temporary measure.

Although RBI has reduced the CRR and brought down the repo rate, thereby bringing down the cost of funds for banks, none of these measures have brought down the cost of funds for HDFC. The corporation continues to pay double-digit interest rates to banks. With interest rates ruling high, fixed deposits, which offer returns up to 10.9%, have once again become the mainstay of HDFC’s borrowings, accounting for over 20% of funds.

In the past, HDFC had raised overseas funds in various currencies, including yen. According to bankers, since the funds are anyway converted into rupees and hedged, the currency does not matter. What is crucial for HDFC will be RBI guidelines on the tenure and cost. Since all its liabilities are long-term with an average loan tenure of seven years, HDFC will require long-term funds.

Even from the cost perspective, a foreign currency borrowing has to have a tenure of at least three years to justify the fixed cost of fund raising, including fees paid to bankers. The guidelines on foreign borrowings are expected to be out within the next couple of days.

Along with guidelines on foreign currency borrowings, HFCs are awaiting an easing of capital requirements in line with the relaxations allowed for banks. National Housing Bank — NHB usually follows the prudential norms on home loans prescribed by RBI.