The urban affairs ministry has given the go-ahead to the National Housing Bank (NHB) to launch a pilot issue of Rs 100 crore for securitisation of asssets in one of the three states identified for this purpose.
These states are Tamil Nadu, Karnataka and Maharashtra and all of them recently reduced stamp duty on securitisation of assets.
An urban affairs ministry official said that this will enhance the cash reserve of housing finance institutions (HFIs) which can give a fillip to the housing sector.
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He said that secondary mortgage market had been strong in the US and there was a need to have such market in India too.
He hoped that once the pilot issue becomes a success, other long-term investors such as LIC, GIC and UTI would take part in the secondary mortgage market.
Securitisation is expected to improve the balance sheets of the HFIs and also help in reducing the wieghted average cost of working funds for these institutions.
FIs traditionally fund thier assets either through borrowings, which increase the costs of working funds.
Securitisation of assets involves generating off balance sheet funds for these institutions. This implies that part of the loan assets of these companies are parcelled into bonds and sold to financial institutions, debt funds or banks looking for securitised assets.
NHB has been working on these securitsation programme for the last three years, and had defferred floating these instruments in view of the high yields prevailing in the financial markets.
This year , with yields down to about 12.5 13 per cent, the cost of accessing working funds become cheap.
Since the original loans have been given at rates of over 15.5 per cent , the Housing finance companies are in a position to book profits.
Besides removal of the assets from the balance sheets improves the capital adequacy of the HFIs. HFI are expected to have minimum capital adequacy of 8 per cent as per stipulations of the Reserve Bank of India.