Nhb Plans 25% Cut In Home Loans Risk Weight

The National Housing Bank (NHB) is planning to the lower the 'risk weights' assigned by the housing finance companies (HFCs) to individual home loans from 75 per cent to 50 per cent. The move comes in the wake of the Reserve Bank of India's proposal of the same in its April 2002 credit policy.

Further, the housing-finance regulator has decided to do away with the ceiling on borrowings, which is currently pegged at 10 times the net-owned funds (NOF).

"We are in the process of notifying the reduction in risk weights of home loans for HFCs. This step will not only release lot of capital for extending housing finance, but will also encourage the HFCs to go in for securitisation of receivables. Further, on account of the reduced risk-weights, commercial banks will show more interest in investing in the mortage-backed securities (MBS) of HFCs," said R V Verma, executive director, NHB.

 

He averred that NHB was working on listing the pass-through certificates (PTCs), issued by special purpose vehicles (SPVs) in lieu of securitised housing-finance receivables, on the stock exchanges.

"This is to develop a secondary market for the PTCs, which currently can only be transferred and not traded, so that they are rendered liquid. In the run-up to their listing, NHB is dematerialising the PTCs. Further, NHB may also undertake market-making in PTCs till such time as volumes in the MBS market does not pick up."

Though there will be no restrictions on HFCs' borrowings, NHB will exercise adequate control via monitoring asset-liability mistmatches, ensuring adherence to prudential prescriptions such as capital adequacy ratio (CAR), risk weights, provisioning, income recognition, and asset classification norms.

Meanwhile, NHB will be tapping the debt mart with its maiden on-tap capital gains (Section 54 EC) bond issue from August 14. It intends to mop up Rs 1,000 crore through the issue. The annually-payable coupon rate has been pegged at 7.15 per cent.

Verma said, refinance rates, which currently hover between 7.25-9.50 per cent, depending on the type and quantum of housing finance extended by HFCs and banks, could be reviewed in view of the new avenue available (capital-gains bonds) for raising funds and also taking into account the overall cost of funds.

NHB is also in advanced stage of talks with Citibank to take up the latter's Rs 150 crore securitisation issue of individual housing-finance receivables. NHB will set up a separate trust, which will be an SPV, for the purpose. Citibank will give credit enhancement by way of cash collateral and subscribe to the class-B PTCs.