After cautioning over an asset bubble in the real estate sector, the Reserve Bank of India  has cracked the whip. The apex bank has sought clarification from six real estate companies on their proposal to raise external commercial borrowings.

The central bank has sought details on the ECB issue of Shewalkar Developers ($4 million), Singapore Realty ($3.36 million), Malwan Hotels ($8.8 million), Highland House ($2 million), Appu Hotels ($10 million) and Kalinga Hospital ($0.4 million), totalling $28 million.

The FCCB issue of Era Constructions, amounting to $75 million, also falls under the list.   According to the central bank data for January and February 2007, the RBI has asked these companies to explain the purpose for which the loans are being raised.

According to sources, the real estate sector has been receiving foreign funds in the form of borrowings and foreign direct investments from private equity funds. Besides, many real estate companies in India have also hit the capital market to raise funds.

The RBI concern is a part of the measures to check inflation since forex inflows, after being converted into rupees, impact the money supply.

In another move, the RBI has sought clarification from Grasim Industries on its $30 million ECB issue. The company wanted the money to meet the capital expenditure and modernisation plans. However, the company had sought ECB over $20 million for a period of less than five years , said a source.

Indian companies have raised $4.47 billion in the two months. Of this, $3.47 billion is under the automatic route which does not need a prior approval from the RBI.

Under the approval route in February, major corporate and financial bodies had sought the RBI go-ahead to mop up up to $900 million for various purposes. In January 2007, the amount was $100 million.

Among the prominent companies which raised ECB are Reliance Communications ($1 billion) through two FCCB issues of five-year maturity to import capital goods, meet rupee expenditure and for telecom in February and Housing Development Finance Corporation.

Reliance Industries and HDFC were the largest issuers of ECBs in the market. HDFC raised $200 million through ECBs with a four-and-a-half year maturity to refinance old loans in January. Reliance Industries raised a similar amount for modernisation with a maturity in February.