Govt mulls FDI in NBFCs offering home loan covers

The government is considering a proposal to permit non-banking finance companies (NBFCs) to offer risk coverage to lenders of home loans and mortgages.

The Foreign Investment Promotion Board (FIPB) has sought the Reserve Bank of India's opinion on the issue following a proposal by Genworth Financial Inc to set up an NBFC for such products.

A proposal of the US-based Genworth has been hanging for the last three months before the FIPB due to absence of any guidelines permitting NBFCs to offer such services. Genworth plans to invest $50 million, of which initial investment of $7.5 million will be made upfront and the balance in next 24 months.

Residential mortgage credit default protection is currently not covered under the 19 NBFC financial services activities where foreign investment is allowed.

"The purpose of new subsidiary (of Genworth) is to offer mortgage guarantee products that provide residential mortgage credit default protection in the Indian market to residential mortgage lenders (primarily banks and financial institutions)," said an FIPB note.

In its last meeting on February 3, FIPB had sought RBI comments at the earliest on the issue. "The Chairman, FIPB, has observed and directed the Department of Economic Affairs that since the proposal is pending for more than two months, the RBI may be requested to expedite their comments and in any case furnish their comments before the next FIPB meeting. This may be treated as final deferment," it said.

According to the current policy, 100 per cent FDI in NBFC is allowed under the automatic route. However, there are some minimum capitalisation norms under which up to 51 per cent FDI stake requires $0.5 million to be invested upfront.

For 51-75 per cent FDI stake, $5 million needs to be invested upfront and for 75-100 per cent foreign investment, the minimum mandated investment amount is $50 million, of which at least $7.5 million should be invested upfront.