Mumbai: Moody’s Investors Service on Monday said the 9 September recommendations of the Reserve Bank of India’s (RBI) Housing Finance Committee, if implemented, will be credit positive for Indian residential mortgage-backed securities (RMBS).

It said one of the recommendations is to standardize loan servicing processes across home loan lenders to make it easier to transfer loan servicing from one provider to another, if the original provider fails.

“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 Dipanshu Rustagi, an assistant vice-president and analyst at Moody’s.

The RBI also recommended standardizing 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," added Rustagi.

Another recommendation is to link home loan lending rates to a common external benchmark, such as the RBI's repo rate. Moody’s said such a correlation will mitigate interest rate risk in RMBS transactions, because it will remove the interest rate mismatch between a lender’s own benchmark rate and coupon rates.

“As for the recommendation on the tax treatment of securitization transactions, Moody’s says that if implemented, such a measure will support the development of the Indian RMBS sector, by removing uncertainty for originators and investors," the rating agency said in its note.

The central bank has requested comments on the recommendations by 30 September, and the central and state governments, financial regulators and tax authorities will need to approve recommendations within their purview before the changes can be implemented.

My Reads Logout