After non-banking finance companies (NBFCs) that do not depend on deposits, finance companies that accept deposits have approached regulators for relaxation in the external commercial borrowing (ECB) norms. The move comes in the wake of the cap on the interest rate, which is affecting their fund-raising plans through this route.
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LIC Housing Finance has already received interest from certain institutions that are ready to extend loans worth Rs 1,000 crore through the ECB route, but at a market-determined interest rates.
“We are allowed to raise up to Rs 1,000 crore through this route, but the interest rate charged are around 500 basis points over the London Inter-Bank Offered Rate (Libor), which is significantly higher than what is permissible. So, we will approach National Housing Bank on the basis of the interest received and ask for relaxing the interest rate ceiling,” said the company’s Chief Executive Officer R R Nair.
Existing Reserve Bank of India (RBI) guidelines allow deposit-taking NBFCs to raise resources up to 50 per cent of their net-owned funds for up to three years. However, the regulator has capped the interest rates on such loans at 200 basis points above the six-month Libor.
Similarly, based on the proposals, a deposit-taking asset finance company has approached the regulator for a reprieve on the interest rate ceiling.
“The overseas condition is still uncertain. Companies are ready to invest in Indian companies, but their risk perception has understandably changed. So, interest rates have moved northwards,” said the head of the company. The relaxation of ECB guidelines is one of the key issues being raised by the industry representatives after the cost of funds started rising due to global uncertainty.
The other NBFCs like Infrastructure Development Finance Company (IDFC) and Srei Infrastructure Finance have already approached RBI for a similar relaxation after receiving interest from foreign investors.
