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FinMin, RBI all set to open ECB window for affordable housing

The Hindu Business Line, Shishir Sinha, New Delhi

October 09, 2012


The affordable housing segment is all set to get boost as the Finance Ministry and the Reserve Bank of India are to announce final guidelines for external commercial borrowing (ECB) very soon.

This will be the second positive move for the real estate sector in recent days. Market regulator Securities and Exchange Board of India (SEBI) on Saturday permitted debt oriented mutual funds to invest 10 per cent (over and above the 30 per cent exposure limit for the financial services sector) of their net assets in housing finance companies.

A senior Finance Ministry official said, "We have to finalise the criteria for availing loans and agency to monitor the end use among some other issues. We hope to do so in one more meeting and accordingly the final guidelines will be issued." Finalisation of guidelines will allow project developers to borrow overseas fund directly.

Another issue under discussion is that whether ECB for low-cost housing should be kept separate from the overall limit of $40 billion or not. The official, however, indicated that it may be part of the overall limit.

In the first six months of the current fiscal, corporates have raised $28-29 billion through ECB, so there is enough room available.

This is in pursuant to the Budget announcement this year. The Finance Minister had said that in view of the shortage of housing for low-income groups in major cities and towns; he proposed to allow ECB for low-cost affordable housing projects. ECB is not allowed for the real estate sector in general.

The Finance Ministry, on August 22, allowed entities such as National Housing Bank (NHB) and Housing Finance Companies (HFCs) to be included as eligible borrowers for financing such low-cost housing projects.

The official said, "Since it will not be possible for the small developers to tap the overseas market directly, agencies such as NHB will borrow and further lend to the developers. The agency may charge little over the interest rate."

Though there are shortages of housing especially for Economically Weaker Section and Low Income Group (LIG), the real estate sector has not been very keen due to very low return.

At the same time the, problem of cheaper funds are also worrying the sector. The Finance Ministry believes that ECB guidelines will encourage them

A Technical Group constituted by the Ministry of Housing and Urban Poverty Alleviation has estimated urban housing shortage at the beginning of 12th Plan, which is the current year, over 18.7 million, majority of which are for poor or very poor sections of the society.