The Reserve Bank of India (RBI) committee has submitted its report to the central bank on the development of Housing Finance Securitisation Market.
Committee Report Suggestions:
- The report has suggested ways to make housing loan securitisation market more attractive by creating an intermediary for standard-setting and market-making for the instruments. “A well-developed securitisation market can emerge as a reliable complement to other sources of funding for home loan lenders”.
- The report further added “Experience from countries with developed securitisation markets shows that securitisation tends to be counter-cyclical; volumes go up when liquidity in the overall capital markets is low and vice versa. A well-developed securitisation market can thus, reduce volatility in funding for lenders.
- It was recommended to start this intermediary with 500 crores of initial capital and it would be allowed to invest in each pool it securitizes to the extent of 5% of the pool, or 5% of its own capital base, whichever is lower. “An overall aggregate limit of 50% of capital of the intermediary can be set as the limit for market-making activities”.
- Another recommendation was made that the RBI should develop standards for loan origination, loan servicing, loan documentation, and for the loans eligible for securitisation, including standardized formats for data collection and aggregation. It also suggested separation of regulatory guidelines for direct assignment transactions and transactions involving PTCs, as well as for mortgage-backed securities and asset-backed securities.
- It is also proposed that this entity would have 51 percent ownership by the government through the NHB initially. Government ownership in the entity would then be gradually reduced to 26 percent over a period of 5 years. The remaining capital of 49 percent may be initially raised from multilateral agencies.
The report estimated that the country will need anywhere between 80 million and 100 million additional housing units by 2022, while building those would cost Rs 100 trillion to Rs 115 trillion.
The six-member committee was constituted on 29 May this year under the chairmanship Harsh Vardhan, Senior Advisor, Bain & Co.
Functions of the Committee were to review the existing state of mortgage securitization market in India and make recommendations to address various issues relating to originators/investors as well as market microstructure.