This initiative aims to help secure funding at more favorable rates and pass on the benefits to borrowers, particularly in the affordable housing sector. In a communication dated October 6, it was confirmed that  would be provided for secured non-convertible debentures issued. The objective is to help these companies diversify their funding sources and reduce their dependence on traditional funding avenues. This facility will be available only to non-deposit-taking HFCs with assets of at least ?1,000 crore. Eligible companies must also have a minimum 'A+' credit rating from two rating agencies and maintain gross NPAs below 2.5% and net NPAs below 1.5%.

To make the bonds more attractive to investors, it was emphasized that high credit ratings are essential. Many HFCs face challenges in issuing bonds due to lower ratings, often caused by issues like asset-liability mismatches.

The regulatory body will charge an annual PCE fee based on the bond's credit rating before enhancement:

• 25 bps for AA+,

• 50 bps for AA/AA-,

• 100 bps for A+.

An additional 2% fee will apply if the issuer defaults or is downgraded.

The enhancement will cover up to 50% of the bond issue, with a minimum size of ?50 crore. The bonds must have a tenure of 3 to 5 years, and the proceeds can only be used to refinance existing debt. The companies must also submit a certificate from their statutory auditor within seven days of receiving funds. The PCE will be provided as an irrevocable contingent line of credit, which is expected to improve the external credit rating of the bonds and help the companies raise funds at lower interest rates.

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