Term-lending institution ICICI Ltd has decided not to merge its subsidiary ICICI Home Finance with ICICI Bank as part of its plans towards universal banking. The decision stems from the significant benefits ICICI Home Finance enjoys as a registered housing finance company (HFC) with National Housing Bank (NHB), said managing director Madhabi Puri Buch.
"We will continue as a subsidiary," Buch stated. Some of the benefits HCFs enjoy include a special mechanism for debt recovery, which helps hasten the entire process in terms of non-performing loans. Further HCFs registered with NHB are able to tap long term funds of 25-year duration to help them in their asset-liability management. "This offers us a major flexibility, though we have not as yet opted to tap this source of funding," said Buch. More importantly, refinance from NHB is around the bank rate, which is far cheaper than other modes of funding.
Presently half of ICICI Home Finance fund requirement comes from banks at sub-PLR rates. With the recent cut in bank rate, and a 200 basis points cut in cash reserve ratio, housing finance companies expect cheaper funds to be made available to them from the fund-flushed banks. ICICI Home Finance also borrows one-third of its requirement from its parent ICICI at the prevailing lending rates. The balance funding comes from inter-corporate deposits. ICICI Home Finance has recently tapped the retail sector in terms of fixed deposits.
Many banks are buying home loan portfolios to meet their priority sector lending. This option would also be open to the new entity.
