NHB in residential mortgage- backed securities deal

The National Housing Bank (NHB) has for the first time in India launched a residential mortgage backed securities (RMBS) scheme under which it will extend guarantee to the principal amount and interest.

NHB has signed a memorandum of agreement (MoA) with BHW Birla Home Finance (BBHFL), a wholly subsidiary of BHW Holdings AG of Germany, to securitise 2,892 housing loans originated by BBHFL.

These securities are for an aggregate of Rs 99.34 crore. NHB, however, will extend guarantee for only Rs 94.28 crore as Rs 5.06 crore of subordinate issue will be bought back by BBHFL.

"The move to provide guarantee on the principle and interest under the securitisation plan is to enhance the secondary market functions and provide impetus to the lending abilities of the originator," P K Gupta, chairman and managing director of NHB, said.

The transaction involves assignment of pool of retail housing loans from BBHFL to NHB. The loans, repayable in equated monthly instalments (EMIs), are packaged and offered by NHB as two forms of pass-through certificates "" the three Senior Class A PTCs aggregating Rs 94.28 crore to be issued to institutional investors and Rs 5.06 crore subordinate class B PTCs, to be subscribed by BBHFL.

The pool of housing loans which constitute the receivables to be securitised, will be held by a special purpose vehicle in the nature of a trust declared by NHB. The three issues have been rated AAA (SO) by credit rating agency Crisil

NHB, which will hold an intial public offer for the packages, has not yet decided on the coupon rate at which it will provide it to the financial institutions, banks and other government organisations.

"The coupon rates will be lower than what the BBHFL gives loans at and will be in the range of 6-7 per cent as it will attract more investment institutions. But it will depend on the market value during the issue," Gupta said.

According to Ralph Haerke, MD of BBHFL, the guaranteed schemes will improve competitiveness of the industry in re-financing and will help BBHFL to obtain Triple A benefits for their home loan portfolios, reducing commitment of equity collateral by the industry.

These are the first RMBS after the budget proposal to include them under the Securities Contract (Regulation) Act, 1956, which is expected to encourage the listings of RMBS.

Earlier, NHB had initiated ten RMBS issues for institutions like HDFC, LIC HFL, Can Fin Homes, BOB HFL, Dewan HFL, BHW Birla and Andhra Bank, aggregating Rs 663.92 crore.

There are other issues of Indian Bank, Union Bank of India and Indian Overseas Bank which will soon be launched.