State-run Housing and Urban Development Corporation Ltd (HUDCO) will raise a total of $2 billion through External Commercial Borrowings (ECB) by December this year, as part of its plan to step up funding for housing and infrastructure projects.

While it has already mobilised ECBs of $700 million, another $1.3 billion in loans have been tied up and will be availed by the end of 2026, Chairman and Managing Director Sanjay Kulshrestha said here on Tuesday. The loans will be mix of dollar and yen denominations, and raised using the Reserve Bank of India’s concessional dollar-rupee swap facility, according to a report by The Financial Express.

Until now, all foreign loans for the state-owned urban infrastructure company have been in yen; this is the first time HUDCO is raising dollar loans. The external loans raised earlier cost 6.25%, including hedging expenses.

As of June-end, HUDCO’s external borrowings stood at Rs 15,927 crore or 10% of its outstanding debt of Rs 1.53 lakh crore. HUDCO has not raised loans abroad in the last two financial years.

The RBI swap window became operational on June 8 and will expire on December 31. It allows public sector companies to raise overseas loans with a maturity of 3 years or more between June 8 and December 31 this year. Funds raised by state-owned companies in other currencies must be converted to dollars.

The dollars raised by these companies must be handed over to the RBI, which will offer Indian rupees in return. Upon loan maturity, PSUs can get dollars back from the RBI for redemption.

RBI will bear the hedging costs but will charge a 1.5% swap fee annually. Some state-run companies have asked the RBI to extend the period for which the special window is available until March 31, 2027. This request considers the business cycle, as loan demand is highest in January-March, the last quarter of the financial year.

Through the swap facility the RBI expects banks and PSUs to raise $85 billion, which would add to reserves and support the rupee.

Kulshrestha said HUDCO will increase its loan book to more than Rs 2 lakh crore by the end of this financial year. In the April-June quarter, HUDCO’s loan book expanded to Rs 1.73 lakh crore from Rs 1.62 lakh crore. The blended cost of borrowing declined to 6.95% in the first quarter (April-June) from 7.17% in the January-March quarter.

In the Rs 1 lakh crore Urban Challenge Fund launched in April, HUDCO acts as a catalyst and financier. The fund seeks to leverage market finance, private participation and citizen-centric reforms for delivering high-quality urban infrastructure.

Since the fund’s guidelines were issued, projects worth Rs 31,000 crore have been sanctioned across the country and Rs 60,000 crore of projects are in the pipeline, Kulshrestha said.

Under the fund a minimum of 50% of project financing must be mobilised from market sources, including municipal bonds, bank loans and Public–Private Partnerships (PPPs). The remaining share can be contributed by States, Union Territories (UTs), Urban Local Bodies (ULBs) or other sources. Projects will be selected through a transparent and competitive challenge mode, ensuring support to high-impact and reform-oriented proposals.