National Housing Bank’s credit enhancement scheme to help new, small HFCs
Mumbai: Regulator National Housing Bank (NHB) is looking to offer a “credit enhancement scheme” for housing finance companies (HFCs) by guaranteeing a portion of their bond issue, a move that is likely to help small housing finance firms access the capital market.
The regulator for HFCs will shortly introduce a pilot scheme, two senior NHB officials said. To begin with, the NHB will guarantee the bond or debenture issues of HFCs up to 30% of the issue size or to a maximum of Rs25 crore.
“This is a pilot issue. Once we see the demand from housing finance companies, definitely we will increase the amount guaranteed,” said one of the two officials, adding that while the scheme was approved by NHB’s board in January, the details are still being worked out for a smooth launch. The pilot will be launched by end of February and NHB will be guaranteeing the bond issues of six to seven select HFCs.
Even as the scheme will eventually be open for all HFCs, it is likely to help the smaller and lesser known firms raise funds from the market.
“This will help firms with minimum investment grade rating. Purpose of the scheme is to make available finance to small HFCs, which do not have access to the bond market. It will help them access the market easily,” the second official said. Lower credit ratings—indicating higher risk for investors—forces companies to pay higher coupon rates.
According to analysts, the scheme is aimed at handholding fledgling HFCs till they reach a “critical mass” and can raise funds at better rates.
“The scheme is likely to help new and smaller HFCs to access funds from the market at cheaper rates as backing by the NHB will have a positive impact on the rating of the debt instrument. Also, over a period of time, it may also lead to gradual repricing of older credit lines that have been availed by these HFCs,” said Harshal Patkar, senior analyst (financial institutions), at credit rating firm India Ratings and Research Ltd. Patkar said the move is line with the government’s ‘housing for all’ mission.
Depending on the response from HFCs, NHB will be increasing the amount guaranteed. “Since all these companies are under the purview of the NHB, due diligence is not an issue,” the second person said.
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