New Delhi, The Reserve Bank of India (RBI) Housing Finance Committee’s recent recommendations on Indian residential mortgage-backed securities (RMBS) have the potential to alleviate key credit challenges associated with the sector, US rating agency Moody’s Investors Service said on Monday.
A Moody’s report said that, if implemented, the recommendations such as standardising loan servicing processes across home loan lenders, among others, will be credit positive for Indian RMBS.
“The recommendation would be credit positive for Indian RMBS because it will increase the likelihood that a suitable replacement can step in and take the place of a failed operator,” said Moody’s Assistant Vice President and Analyst Dipanshu Rustagi.
The RBI has also recommended standardising loan documentation criteria and establishing minimum loan eligibility and disclosure requirements for RMBS deals.
“Such a move will increase transparency in the Indian mortgage sector, reducing risks in the underlying loans backing RMBS deals,” Rustagi said.
Another central bank recommendation is to link home loan lending rates to a common external benchmark, such as the RBI’s repo rate.
Moody’s says that such a correlation will mitigate interest rate risk in RMBS transactions, as it will remove the interest rate mismatch between a lender’s own benchmark rate and coupon rates.
