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RBI Releases Report on Housing Loan Securitisation, Recommends New Intermediary Body

New Delhi: A committee formed by the Reserve Bank of India (RBI) to look into the development of the housing finance securitisation market submitted its report to Governor Shaktikanta Das.

Key recommendations by the committee include setting up of a government-sponsored intermediary through the National Housing Bank to enable market-making and standard-setting. Developing standards for loan origination, loan servicing, loan documentation, and loans to be eligible for securitisation, including standardised formats for data collection and aggregation is one of the important suggestions.

The committee has also recommended separation of regulatory guidelines for direct assignment transactions and transactions involving pass-through certificates as well as for mortgage-backed securities (MBS) and asset-backed securities (ABS). Relaxation of regulatory norms for minimum holding period (MHP) and minimum retention requirement (MRR) for MBS has also been advised.

The report has further suggested amendments and/or clarifications for registration and stamp duty requirements and tax guidelines to reduce transaction costs for securitisation as also to encourage investments in pass-through-securities.

Treating the assets underlying a securitisation transaction as well as any exposures in the form of credit enhancement as bankruptcy remote under the insolvency laws for financial firms and changes to regulations issued by financial sector regulators to incentivise participation of their respective regulated entities as investors, the report said.

The committee was constituted on May 29, 2019, with Harsh Vardhan, Senior Advisor, Bain & Co. as the Chairperson. It was set up in recognition of the role of well-functioning securitisation markets for better management of credit and liquidity risks in the balance-sheets of banks as well as non-bank mortgage originators.