After entering the mortgage guarantee space and helping set up the Credit Guarantee Fund Trust for low-income housing, National Housing Bank (NHB) now plans to diversify into the residential mortgage-backed securities (RMBS) segment.
“We are proposing to kickstart the RMBS segment. We should be able to close the first RMBS deal within the framework of the RBI guidelines by November 15,” an NHB official familiar with the development told Express.
RMBS are backed by mortgages on residential rather than commercial real estate. This will be the first time that the regulator of housing finance companies will be doing a RMBS deal.
Considering the need to promote the development of secondary market for RMBS in India, NHB envisages to introduce specialized institutional measures for providing credit enhancements for promoting the development of secondary market for residential mortgages. Since such credit enhancements are presently absent in India, the board of NHB had approved a proposal to guarantee RMBS issued by NHB.
Through RMBS, the housing finance major would provide an irrevocable guarantee in its corporate capacity to the RMBS issues of eligible primary lending institutions like housing finance companies and banks with the main intent to obtain rating of investment grade indicating highest safety AAA from an approved rating agency.
Simultaneously, NHB is also in the process of framing guidelines for launching covered bonds. “We have also initiated a study for introduction of covered bonds. We had set up a working group for covered bonds during 2011-12 fiscal,” the official added.
Covered bonds are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer’s consolidated balance sheet.
NHB is expected to launch these bonds in October-December quarter.