On October 6, it was announced that the NHB will extend PCE to secured non-convertible debentures (NCDs) issued by these companies. The objective is also to help HFCs diversify their funding sources and reduce their over-reliance on traditional funding methods. The facility will be available to non-deposit-taking HFCs with an asset base of at least ?1,000 crore, provided they have a credit rating of 'A+' from two rating agencies. Furthermore, these companies must maintain gross and net non-performing assets below 2.5% and 1.5%, respectively, to qualify.

To attract investors at competitive rates, the bonds issued by HFCs must carry sufficiently high credit ratings. Many HFCs are unable to issue bonds due to lower ratings from credit agencies, often because of a mismatch between their assets and liabilities. A basis point refers to one-hundredth of a percentage point.

The PCE will cover up to 50% of the bond issue size, with a minimum issue size of ?50 crore. The bonds will have a tenure of 3 to 5 years, and the proceeds must only be used to refinance existing debt. HFCs are required to submit a certificate from a statutory auditor within seven days of receiving the funds. The PCE, which will be provided as an irrevocable contingent line of credit, is expected to improve the external credit ratings of the bonds, allowing HFCs to raise funds at more favorable rates.

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