RBI forms committee to review existing state of mortgage securitisation

To develop the housing finance securitisation market in India, the Reserve Bank of India (RBI) on Wednesday formed a committee to review the existing state of mortgage securitisation and suggest ways to develop the market further under the chairmanship of Harsh Vardhan, senior advisor, Bain & Co. 

The committee has been asked to submit its report by the end of August 2019. 

The newly appointed committee has been mandated to examine the existing structure for mortgage-backed securitisation transactions in India, including legal, tax, valuation and accounting-related issues. It has also been asked to suggest necessary modifications to address the requirements of originators and investors. 

The RBI has asked the committee to also suggest measures for facilitating secondary market trading in mortgage securitisation instr­u­ments, such as broadening investor base, and strengthening market infrastructure. 

Moreover, it has been tasked to analyse the inter-linkages between securitisation and other related financial market instruments and suggest policy interventions to leverage these inter-linkages. 

The mandate of the committee also requires them to evaluate the role of various counterparties, including the servicers, trustees, rating agencies in the securitisation process, and suggest measures required, if any, to address the key structural, fiduciary and servicer risks. 

The other members of the committee include Sanjay Gupta, MD PNB Housing Finance, Pranjul Bhandari, chief India economist, HSBC, Naresh Thakkar, MD & group CEO Icra, Bindu Ananth, Chair & Trustee, Dvara Trust and Chandan Sinha, Additional director at CAFRAL.

The RBI in its April bi-monthly monetary policy meet had floated the idea of forming a committee to develop the home finance securitisation market in India as it was of the view that well-functioning securitisation markets can enable better management of credit and liquidity risks in the balance sheet of banks as well as non-bank mortgage originators, and, in turn, help lower costs of mortgage finance in the economy. 

“For a vibrant securitisation market to develop, it is imperative that the market moves to a broader issuance model with suitable structuring of the instruments for diverse investor classes,” the RBI said in its statement.