The Reserve Bank on Monday allowed real estate developers and housing finance companies to raise up to $1 billion through external commercial borrowings (ECBs) in the current fiscal to promote low-cost housing projects.

The funds raised through ECBs could be used either for developing low cost housing projects or for providing loans up to Rs 25 lakh to individuals for buying units with a price tag of Rs 30 lakhs or less.

"It has been decided to allow ECB for low cost affordable housing projects as a permissible end-use, under the approval route. ECB can be availed of by developers/builders," RBI said in a circular.

Besides developers, the central bank said housing finance companies (HFCs)/National Housing Bank (NHB) can also raise ECBs for financing prospective owners of low cost, affordable housing units.

Slum rehabilitation projects, the circular said will also be eligible for raising ECBs to fund affordable housing projects.

ECBs are considered attractive as cost of raising the loan overseas is lower than that of domestic borrowings.

Besides, they provide an additional avenue to access large amounts of funds from global financial markets.

As per the guidelines, developers/builders with a minimum track record of five years in undertaking residential project will be eligible to raise ECBs.

With regard to HFCs, the circular said that only those companies with a minimum paid up capital of Rs 50 crore and minimum net owned fund of Rs 300 crore would be eligible to raise ECBs.

It further said the maximum loan amount for individual buyers should be capped at Rs 25 lakh subject to the condition that the cost of the individual housing unit would not Rs 30 lakh.