On Monday, Moody’s Investors Service 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).
The RBI 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 Dipanshu Rustagi an assistant vice-president and analyst at Moody’s.
The RBI also 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.