The Reserve Bank of India (RBI) has reviewed its policy relating to external commercial borrowings (ECBs) for low-cost, affordable housing projects. Through AP (DIR Series) Circular 61, issued on 17 December, the RBI provided guidelines for developers and builders, housing finance companies (HFCs) and the National Housing Bank (NHB) for the use of ECBs, up to an aggregate limit of US$1 billion in the financial year 2012-13, to invest in low-cost housing projects and finance prospective owners of low-cost affordable housing units, respectively. The circular makes clear that the ECBs cannot be used to acquire land.
The guidelines were issued and made effective following an RBI notification on 27 November which amended the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Third Amendment) Regulations, 2012, to allow developers and builders, HFCs and the NHB to use ECBs for these housing projects.
Under the circular, a low-cost, affordable housing project is defined as one in which at least 60% of the permissible floor space index will be for units with a maximum carpet area of up to 60 square metres. Slum rehabilitation projects are also eligible under the low-cost housing scheme provided they meet the criteria set by government authorities administering such rehabilitation.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
