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RBI to set up panel on development of housing finance securitisation market

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The Reserve Bank of India, on Thursday, announced that it will soon set up a committee to assess the state of housing finance securitisation market in the country. The move is aimed at bringing in standardisation of asset securitisation practices to enable better management of credit and liquidity risks.

The committee, which will be announced soon, will also study the best international practices, and lessons learnt from the global financial financial crisis. It will propose measures to further develop these markets in India by identifying critical steps required, such as definition of conforming mortgages, mortgage documentation standards, digital registry for ease of due diligence and verification by investors, and avenues for trading in securitised assets.

“The composition and terms of reference of the committee will be announced shortly. The report will be due by the end of August,” the RBI said on Thursday, as part of its Statement on Developmental and Regulatory Policies, released along with the first bi-monthly Monetary Policy Statement of 2019-20.

Higher borrowing costs

The move comes at a time when housing finance companies and NBFCs have been facing higher borrowing costs and slowdown in funding after a liquidity squeeze in the market. The RBI noted that globally, residential and commercial mortgages are supported by well-lubricated securitisation markets, under which mortgage originators package portfolios of mortgages and resell them in capital markets as mortgage-backed securities or covered bonds.

“Well-functioning securitisation markets can enable better management of credit and liquidity risks on the balance sheets of banks as well as non-bank mortgage originators and, in turn, help lower the costs of mortgage finance in the economy,” it said, noting that in contrast, in India, the securitisation market is dominated by direct assignment and purchase of loan receivables of non-banks (including housing finance companies) by banks.

Industry players welcomed the move, and said it will help deepen the market and improve liquidity conditions.

“The focus to align the Indian housing finance securitisation market, as well as the secondary market for corporate loans with international best practices announced today, will essentially deepen these markets and ensure better price discovery,” said Khushru Jijina, Managing Director, Piramal Capital and Housing Finance

Ranjeet Mishra, Chief Credit Officer, ART Housing Finance, said the move is a positive impetus for the sector and will help on the liquidity front.


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