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.
The central bank and state government financial regulators and tax authorities will need to approve recommendations within their purview before the changes can be implemented.
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