ADB-backed Mortgage Corp may need new investors to grow

With restrictions on shareholders having controlling stake, Asian Development Bank (ADB)-backed India Mortgage Guarantee Corporation (IMGC) may need to raise equity from new investors to meet its growth plans and maintain adequate capitalisation levels.

Rating agency ICRA reaffirmed the issuer rating for IMCG at ‘AA’, but it revised the outlook from ‘stable’ to ‘negative’. The revision factors in lower-than-anticipated growth in the company’s scale of operations, which impacts its profitability.

IMGC is the only mortgage guarantee company (MGC) in India. It is sponsored by Genworth Financial Mauritius Holdings — a part of Genworth Financial, Inc. The other shareholders are National Housing Bank, International Finance Corporation, and ADB.

The Reserve Bank of India’s regulations for MGCs stipulate that an MGC cannot be a subsidiary of any company. Also, no shareholder can have a controlling stake in the company.

Further, to achieve the planned scale of business, IMGC needs additional capital in the near to medium term. This is contingent upon its ability to on-board new investors since Genworth has limited headroom available for further capital infusion. Its shareholding was 48.68 per cent as of July 31, compared with the regulatory cap of 49.99 per cent for a single shareholder.

IMGC has managed to on-board large mortgage lenders like ICICI Bank, State Bank of India, HDFC Limited, LIC Housing Finance, and Axis Bank. However, the traction in business volumes has been slower than anticipated, resulting in continued losses and delayed projected break-even timelines. 

Its business is expected to scale up at a healthy pace due to factors like the slight boost to value proposition due to the Covid-19-induced stress. The renewed focus towards small and medium non-banking financial companies and housing finance companies will also give push to business.

The company cumulatively guaranteed loans amounting to Rs 9,261.27 crore, against which the risk in force was Rs 1,411.62 crore as of June 30. For 2019-20, IMGC reported a net loss of Rs 13.16 crore on an asset base of Rs 225.54 crore, against a net loss of Rs 19.75 crore on an asset base of Rs 223.09 crore in 2018-19.

Its ability to manage the expected increase in claim payout arising from the Covid-19-induced stress will also remain a monitorable, added ICRA.