RBIA committee of the Reserve Bank of India [RBI] has suggested formulation of a Government-sponsored intermediary to enable market-making and standard. This is Reserve Bank of India’s committee for the development of Housing Finance Securitization Market.

In its report, the committee has recommended that an intermediary to promote housing finance securitization with the primary functions of standard-setting and market-making should be established by National Housing Bank [NHB].

The proposal also states that this individual entity would have a 51 percent stake by the Government via the National Housing Bank initially. However, the Government stake will be reduced to 26 percent over a period of 5 years. The report also says that this entity will begin with an initial capital funding of Rs. 500 crore and will have the liberty to invest in each pool it securities to the extent of 5 percent of the pool or 5 per cent of its own capital base, whichever is lower.

Apart from this, the committee also pointed out the need to develop standards for loan origination, loan servicing, loan documentation, and loans to be eligible for securitization, including standardized formats for data collection and aggregation.

The RBI committee also asked for the individuality of regulatory guidelines for direct assignment transactions and transactions involving pass-through certificates and also for the mortgage-backed securities (MBS) and asset-backed securities (ABS).

The committee also recommended a 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 securitization as also to encourage investments in pass-through-securities.

This committee is formed to review the present situation of the mortgage securitization market in India and to offer recommendations for addressing multiple issues relating to investors and market microstructure.