On Friday HDFC declared that they have completed the $ 1.1 billion syndicated social loan to finance affordable housing in India. HDFC has raised this loan by External Commercial Borrowings (ECB). “This is the largest social loan in the world, the largest loan issuance in India and the largest ECB loan deal from a Housing Finance company / private NBFC in India,” said HDFC.
What is a social loan?
This is a loan acquired to finance projects that address social issues of a socket directly and aim to achieve positive social outcomes from their work like affordable housing in India with the growing population can be a social issue.
What is a syndicated loan?
A type of loan provided by a group or consortium of lenders and is administered and overlooked by one of the several banks in the group as a lead arranger.
What is ECB?
ECB stands for external commercial borrowing which are monetary instruments used by companies to raise capital from foreign markets in the home currency. This increases the value of the currency because of the heavy investment coming in the home currency.
Now arises the question of why such a big loan, India is a country whose population is rising at an increasing rate with rye poverty level. Places like Mumbai and Delhi are enormously burdened by the population. In such times we need a strong affordable housing facility to support the population.
“In India, housing will play an important role as a catalyst for growth with increased demand for affordable housing. Combined with India’s growth prospects, I have never been as optimistic about the affordable housing sector as I am today,” said Deepak Parekh (Chairman of HDFC).
When such a large amount of money is pumped into the economy or will multiply and generate jobs to finance our point GDP growth and positively contribute to per capita income. Employment generation will also be a key factor that will be seen once HDFC starts its groundwork with the syndicate money.
Previous loans by HDFC have helped over 3.14Lakh beneficiaries under the affordable housing sector, under CLSS (credit linked subsidy scheme) of Pradhan Mantri Awas Yojana (PMAY) according to HDFC this is one of the highest by any financial firm in India.
The Syndicate :
This mega loan has been priced at a margin of 90 bps over SOFR. This means this loan is 90 basis points (90/100 of a percentage point) over the Secured Overnight Financing Rate (SOFR).
Japanese Baking Giant MUFG Bank Ltd. is said to be the lead arranger and loan coordinator and one of the Mandate Lead Arrangers and Borrowers (MLAB). Other members of the syndicate are CTBC Bank Co, Mizuho Bank Ltd, State Bank of India (SBI) and Sumitomo Mitsui Banking Compare other MLABs and joint coordinators.
HDFC since its inception in 1977 has been the largest mortgage lender by size in India and has financed 9.5 million housing units having a gross loan book of Rs 6.7 trillion. With their new mega projects, HDFC looks to strongly hold the Indian loan market for real estate and shape the Honourable Prime minister Narendra Modi’s core pledge of “housing for all policy.”
Affordable housing has been a critical point of evaluation for developed countries and we have been living behind in this sector for a while now but this deal could change the way Indians view the real estate market and could potentially change the poor employment rate adding to the overall growth and productivity of Our India.