The Securities and Exchange Board of India (SEBI), on 10th August, 2016, increased the additional exposure limits provided for housing finance companies (HFCs) in the financial services sector to debt-oriented mutual fund schemes from 5% to 10%. The existing norms require debt mutual fund schemes to cap their investments at 25% of the net assets of the scheme in a single sector except for the financial services sector, wherein additional exposure can be taken for HFCs. With this change in regulation, total exposure cap to the financial services sector (including the housing finance segment) stands at 35%.
The total asset under debt-oriented mutual funds was around Rs. 9.7 trillion as on July 2016; increase in exposure limit by 5% will give headroom of Rs. 500 billion worth of investments in the housing finance segment. Karthik Srinivasan, Senior Vice President and Co Head-Financial Sector Ratings, ICRA Limited, said: “Factoring in an estimated credit growth of 20-22% in FY2017, and the re-financing requirements, we estimate that HFCs would need to mobilise a total debt of ~Rs. 2.2 – 2.6 trillion during FY2017. With the change in guidelines, debt market instruments could have a higher share in the incremental funds raised by HFCs.”
A larger part of the incremental funding is expected to be in the form of commercial paper and short-to-medium term NCDs, and thus managing the asset-liability gaps within manageable levels would remain a challenge for HFCs, given the relatively longer tenure of the assets. “Further, given that funding from the debt markets could be at relatively lower rates than bank borrowings, this would lead to moderation in cost of funds for HFCs rated at AA category and above,” Mr. Srinivasan added.
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