Housing Development Finance Corp is set to become the first Indian borrower to take advantage of the central bank's relaxed norms on external commercial borrowings, upsizing its foreign loan to around $1 billion from $750 million earlier, people familiar with the matter told ET. Funding costs will remain the same.

The State Bank of IndiaNSE 0.43 % (SBI  NSE 0.43 %) is said to join the syndication process that already has confirmed participation from Mizuho Bank, MUFG and Standard Chartered Bank, the people cited above said.HDFC  NSE -0.34 % and the individual banks did not comment on the matter.

The loan term has been finally fixed at three years. The loan could be priced after adding about 115 basis points over the Secured Overnight Financing Rate (SOFR), a global rate gauge.

One basis point is 0.01%.

"Both the borrower and banks are discussing the matter, and the deal is closing now," said an executive involved in the exercise.

The central bank last Wednesday announced a slew of measures to shore up depleting forex reserves and arrest the rupee's fall against the dollar. It created additional space for companies tapping the offshore loan market, raising the ceiling on the external commercial borrowing (ECB) vehicle to $1.5 billion from $750 million now.

A local borrower availing the ECB option can also offer up to 100 basis points more to international investors; this threshold is currently capped at 500 basis points.

HDFC faces robust demand for home loans, raising the need for more borrowing resources.

On July 4, ET reported that HDFC was planning to raise $750 million via an offshore loan, which is likely to be its last ECB before it is merged with HDFC Bank NSE 0.16 %.

The six-month SOFR is yielding about 2.60% now. If the borrower hedges the entire funds, it may have to fork out up to 470 basis points additionally going by current cost of currency risk covers in the forwards market.

Bond Yields Rising
HDFC Ltd bond yields are inching up after insurance companies were seen shying away because of a regulatory technicality linked to the proposed merger. They were traditional investors in HDFC bonds, considered premium credit quality.

Meanwhile, its yield differential with Bajaj Finance  NSE -0.18 %, another top-rated non-banking finance company, has narrowed by about 15-20 basis points.

The central bank last week approved HDFC's merger with HDFC Bank. It has a gross loan book of $86.15 billion, with individuals making up about four-fifths of the size.

The central bank last week approved HDFC's merger with HDFC Bank. It has a gross loan book of $86.15 billion, with individuals making up about four-fifths of the size.

Individual loan disbursements climbed 37% year-on-year in FY22, partly aided by growth in the high-income group. "Overall, we are positive on HDFC's merger with HDFCB; however, over the medium-to-long term, the strategy on scale-up of housing loans, PSL NSE -10.00 % (priority sector lending) and liability generation playing out will be the key to watch," IIFL Securities  NSE 1.27 % said in a note on June 21.