Mumbai: Every time the Reserve Bank of India (RBI) announces its monetary policy, there is an accompanying document called “Statement on Developmental and Regulatory Policies". On almost every occasion, these documents include announcements on new committees being formed to examine reforms. This time, too, two new committees have been announced—one to examine the efficacy of introducing a secondary market in mortgages and another to study the development of a secondary market for corporate loans. Both the reports are expected in August 2019.
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The first is to examine. The central bank’s statement says, “Globally, residential and commercial mortgages are supported by well-lubricated securitisation markets whereby mortgage originators package portfolios of mortgages and resell them in capital markets as mortgage-backed securities or covered bonds. Well functioning securitisation markets can enable better management of credit and liquidity risks on the balance-sheets of banks as well as non-bank mortgage originators and, in turn, help lower the costs of mortgage finance in the economy."
However, in India, the secondary market is primarily characterised by banks directly buying the housing loan book of either a non-banking finance company or a housing finance company. The RBI committee will examine the state of the housing finance securitisation market in India, study best international best practices, including the lessons learnt from the 2008 financial crisis (which had its seed in the secondary market for mortgages).
The second panel’s remit would include examining loan contract standards, digital loan contract registry, ease of due diligence and verification by potential loan buyers, online platform for loan sales/ auctions, and accessible archive of historical market data on bids and sale prices for loans.