RBI sets up committee for development of housing finance securitisation market

Mumbai: The Reserve Bank of India (RBI) Wednesday constituted a committee to review the existing state of mortgage securitisation in India and suggest measures to deepen it.

The mortgage securitisation market in India is primarily dominated by direct assignments among a limited set of market participants on account of various structural factors impacting both the demand and the supply side, as well as certain prudential, legal, tax and accounting issues.

The six-member committee on the development of housing finance securitisation market, headed by Bain & Co Senior Advisor Harsh Vardhan, has also been asked to assess the role of various counterparties, including the servicers, trustees, rating agencies, in the securitisation process and suggest measures required.

The panel would also suggest specific measures for facilitating secondary market trading in mortgage securitisation instruments, such as broadening investor base, and strengthening market infrastructure.

For a vibrant securitisation market to develop, the RBI said it is imperative that the market moves to a broader issuance model with suitable structuring of the instruments for diverse investor classes.

At the same time, as the international experience shows, it is critical to address the issues of misaligned incentives and agency problems resulting from information asymmetry problems between the originators and investors in the market, which can exacerbate systemic risk.