The Reserve Bank of India's committee on the development of 'Housing Finance Securitisation Market' has recommended setting up a government sponsored intermediary to "enable market making and standard setting".
The committee, in its report to the RBI, has recommended that "an intermediary to promote housing finance securitisation with the primary functions of standard-setting and market making should be established by National Housing Bank".
"It is also proposed that this entity would have 51 per cent ownership by the government through the NHB initially. The government ownership in the entity would then be gradually reduced to 26 per cent over a period of 5 years.
"The entity will start with Rs 500 crore of initial capital... the intermediary would be allowed to invest in each pool it securitises to the extent of 5 per cent of the pool or 5 per cent of its own capital base, whichever is lower," it said in the report.
The committee also pointed out the need to develop standards for "loan origination, loan servicing, loan documentation, and loans to be eligible for securitisation, including standardised formats for data collection and aggregation".
Besides, it called for a separation of regulatory guidelines for "direct assignment transactions and transactions involving pass through certificates" as well as for mortgage-backed securities (MBS) and asset-backed securities (ABS).
"Relaxation of regulatory norms for minimum holding period (MHP) and minimum retention requirement (MRR) for MBS; amendments and/or clarifications for registration and stamp duty requirements and tax guidelines to reduce the transaction costs for securitisation as also to encourage investments in pass-through-securities," were also recommended.
The committee was set up to review the existing state of mortgage securitisation market in India and make recommendations to address various issues relating to investors as well as market microstructure.