Raising funds overseas has become an expensive proposition for housing finance companies (HFCs) with the Union Budget proposing to withdraw the exemption granted to them on payment of withholding tax on external commercial borrowings (ECBs).
Till this year, HFCs were the only class of borrowers to enjoy an exemption from the payment of withholding tax on ECBs. This means that the interest on foreign loans was exempted from tax. This will no longer be the case for ECBs entered into from May 31 onwards, as HFCs will have to built in a 20-25 per cent rise in the cost of overseas funds. HFCs are relooking at the viability of such borrowings.
The Housing Development Finance Corporation (HDFC) and LIC Housing Finance may just manage to raise $150 million before May 31, without having to pay any withholding tax.
Dewan Housing Finance Ltd (DHFL), though had plans on the anvil to tap overseas funding, is now re-looking at the proposition, following the