International Joint Ventures and Merger & Acquisitions

ECB Low Cost Housing

August 22, 2016

The External Commercial Borrowings (ECB) route has been used by Indian businesses & project developers for little over a decade...

The External Commercial Borrowings (ECB) route has been used by Indian businesses & project developers for little over a decade to mobilize loan funding from abroad at a distinctly lower rate than that of the domestic bank loans. Because of the significant interest savings, Indian business houses show a natural inclination to this mode of financing. However, the choice is not so easy to implement as the Reserve Bank of India (RBI) requires various conditions and covenants which need to be satisfied for availing the ECB route.

There is a stipulation of the RBI that the borrowings be invested only in new projects, modernization / expansion of existing production units, infrastructure sector, specified service sectors (namely, hotel, hospital, software in India), and for overseas direct investment in joint venture or wholly owned subsidiaries. Traditionally the end use of the ECB proceeds have not been permitted for on-lending or investment in capital markets, for the real estate sector, working capital funding, general corporate purpose, and repayment of existing rupee loans.

However, after introduction of the RBI Master Circular dated 1st July 2011, the embargo on utilization of ECB for acquisition of land for real estate sector, i.e. industrial use, has been removed. Similarly, the Union Government of India, through its Budget for 2012-13, has liberalized the ECB norms further and, among other measures, has proposed to opening up ECB for special™ sectors including civil aviation and low-cost affordable housing.

ECB in Low-Cost Affordable Housing Projects

The RBI, vide its notification dated 17th December 2012, has allowed ECB to eligible developers/builders for low-cost affordable housing projects, housing finance companies (HFCs) and the National Housing Bank (NHB), for financing prospective owners of low-cost affordable housing units, under the approval route. However, the eligible borrowers will not be permitted to raise foreign currency convertible bonds (FCCBs) under this scheme and cannot use the ECB funds for acquisition of land. All existing norms on ECBs, as may be applicable, shall be applicable here as well.

The NHB shall act as a nodal agency for deciding the project's eligibility as a low-cost affordable housing project. Once satisfied, the application shall be forwarded to the RBI for consideration under the approval route. Currently, a limit of $1 billion has been fixed for ECBs under the low-cost affordable housing scheme and the limit shall be reviewed on an annual basis.

Which projects will be eligible?

  • project with at least 60% of the permissible FSI (floor space index) for units with a maximum carpet area of 60 square meters.
  • Slum rehabilitation projects. The parameters shall be set by the Central Sanctioning and Monitoring Committee of the Affordable Housing in Partnership Scheme (AHP) constituted under the chairmanship of Secretary, Housing & Urban Poverty Alleviation (HUPA).

Who are eligible borrowers?

  • Developers/ Builders with minimum five years of experience in undertaking residential projects and proven track record in terms of delivery, quality and credit history.
  • Housing Finance Companies (HFCs) All NHB-registered HFCs satisfying the following requirements:
    - Minimum paid-up capital of not less than Rs 50 crore as per the last audited balance sheet;
    - Minimum net owned funds (NOF) of not less than Rs 300 crore for the past three financial years;
    - The borrowing through ECB shall be within the overall borrowing limit of 16 times the NOF;
    - Net non-performing assets (NNPA) shall not exceed 2.5% of the net advances;
    - The maximum loan amount sanctioned to the individual buyer will be capped at Rs 25 lakh, subject to The condition that the cost of the individual housing unit shall not exceed Rs 30 lakh;
  • The National Housing Bank (NHB), which is also the nodal agency, can raise ECB for financing low cost affordable housing units of individual borrowers as well.


ECB proceeds shall be utilized only for low cost affordable housing projects and shall not be utilized for acquisition of land.

Favorable Opportunities available to Real Estate Developers in India

With the RBI allowing ECB in the development of low cost affordable housing projects in India, there is now an encouraging opportunity ahead for developers and builders of such projects. The financial crunch in the real estate sector is set to ease with these revised norms and even the young and growing developers / builders / HFCs shall have access to funding at more feasible rates. The savings which are now available in the cost of funds will provide a big advantage, especially if the scale of operations and investment is large.

ILO Consulting is well placed to facilitate fund raising via the ECB route, through its international partner network in over 30 countries, including strong relationships & tie-ups with Foreign Investments Banks, Law Firms, Corporate Finance Boutiques and Financial Institutions.

We can provide turnkey assistance to Indian real estate players and housing finance companies in bringing forth interested financial institutions, structuring the transaction, negotiation of key terms of financing and complying with local regulatory requirements, among other offerings.

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