Banks and housing finance companies have started acting on the series of measures announced by the Reserve Bank on Saturday. While major banks have hiked their forex deposit rates, housing finance companies (HFCs) are readying plans to raise money from overseas to fund their operations at home. HFCs are, however, working on the modalities to borrow overseas before changing their lending rates.
The country?s largest lender, State Bank of India, the second largest lender, ICICI Bank, and the second largest state-owned lender, Punjab National Bank, have announced higher interest rates on the FCNR(B) and NRE (rupee) deposits on Monday.
For SBI and PNB, post-revision, interest rates on foreign currency non-resident (banks) or FCNR(B) dollar deposits, of a maturity of more than one year but less than two years, will be 4.17%, instead of 3.42%.
ICICI Bank revised its interest rates on NRE fixed deposits and FCNR(B) deposits with effect from November 18. The one-year NRE deposit rate has been increased by 75 bps to 4.92%. For FCNR(B) deposits denominated in USD, the interest rate for one year has been increased by 75 bps to 4.17% per annum, whereas for FCNR(B) deposit denominated in GBP, the rate has been increased to 7.01 % per annum.
On Monday, an RBI statement said HFCs registered with National Housing Bank (NHB) can raise short-term foreign currency borrowings under the approval route, where the maximum amount should not exceed 50% of the net owned funds or $10 million (or its equivalent), whichever is higher with a maximum maturity of three years.
?The resources should be used only for refinancing the short-term liabilities and no fresh assets should be booked out of the resources,? said the statement. HFCs complying with capital adequacy norms and other prudential norms laid down by National Housing Bank would be eligible to raise short-term foreign currency borrowings.
?Multilateral or bilateral financial institutions, reputed regional financial institutions and foreign equity holders with minimum direct equity holdings of 25% would be eligible lenders,? RBI said. The all-in-cost ceiling should not exceed six months Libor plus 200 bps. The borrowings should be fully swapped into rupees for the entire maturity, the release said.
Meanwhile, HFCs are getting ready to tap overseas funding for their domestic operations. Keki Mistry, vice-chairman & managing director, HDFC, India?s largest mortgage player, said, ?We would certainly like to go overseas for the funding, post-the regulator?s recent move on raising short-term funds. However, we have not yet decided on the size as well as the tenor of the proposed loan. At the moment we are keenly watching the deposit rates in the system and are not in a hurry to alter our lending rates.?
RR Nair, director & chief executive, LIC Housing Finance, said, ?We are studying the details given by RBI in this connection.?
?We may require raising a sum of Rs 7,000-8,000 crore, including the foreign currency, for the current fiscal, but it will all depend on the margins. We have not transferred the increase in our cost, by 125 basis points since April, to our customers as yet. Also, we have to see up to what extent banks will be reducing their rates before cutting our rates?, Nair added.
Kapil Wadhawan, vice chairman & managing director, DHFL, said, ?The short-term foreign currency borrowing programme introduced is a very positive move as more forex money will flow in. We are eagerly waiting for the final guidelines. We expect interest rates to come down and induce further liquidity in the system.??
Talking about cheaper home loans, he said if cost of funds does not come down, housing finance companies do not see home loans getting cheaper. ?However, we do not see cost of funds coming down,? he said.