The housing finance market is about to breathe easy so far as liquidity is concerned. National Housing Bank (NHB) is working on a mechanism under which it proposes to buy housing loans from banks and housing finance companies (HFCs) to provide liquidity and free up capital to these lenders. NHB, in turn, will securitise the loan portfolios and sell the papers to institutional investors like banks and insurance companies.
This is the first time NHB has proposed such a scheme. "This is a new initiative which will provide liquidity to lenders and free up capital. This will ultimately channel more resources to the housing finance sector. This will also ease pressure on home loan interest rates," NHB executive director RV Verma told ET. Here's how the proposed structure will work -- NHB would hold the purchased assets on its balance sheet for onward securitisation. In the process, the portfolios will get more seasoned with NHB. In other words, it will act as a warehouse of mortgage assets to be securitised and then sell to investors without diluting the standard of the assets.
The decision to evolve this new liquidity window was taken at a meeting between the NHB brass and lenders on Monday. NHB will offer this facility parallel with the usual refinance window. As per preliminary discussions, the apex housing bank will buy out only the standard assets which carry low-risk weightage. Loans not exceeding Rs 30 lakh will be eligible for this arrangement. "We would like to buy loans which have minimum seasoning of at least six months," Mr Verma said. The amended Securities & Contracts Regulation Act now allows securitised instruments to be traded. This gives an added flexibility to the securitised market. "The seasoning of assets and tradeability will help fetch a good price for the securitised assets," Mr Verma said, adding that the whole exercise will help NHB continue funding over and above the exposure limit to individual entities.ET
