The first mortgage guarantee company in the country is all set to take off with the Reserve Bank of India giving its green signal for the venture to commence operations.
The RBI has given a certificate of registration for India Mortgage Guarantee Corporation (IMGC), the first mortgage guarantee company to be registered with the regulator.
In February 2008, the central bank had come out with a separate regulatory framework for mortgage guarantee companies, spelling out the minimum capital requirement and stipulating that they cannot accept public deposits or raise funds abroad.
“Now that the certificate of registration has been received from RBI, this new venture will soon commence operations and start entering into MoUs with banks and housing finance companies,” R. V. Verma, Chairman and Managing Director of National Housing Bank, told
Stake-holding
NHB is the majority shareholder with 38 per cent stake in IMGC, followed by US-based Genworth Financial (technical partner) with 36 per cent stake.
Asian Development Bank and International Finance Corporation have 13 per cent stake each in this commercial venture, which is now capitalised at Rs 120 crore.
The launch of this long-awaited mortgage guarantee venture is expected to bring greater depth and reach in the housing finance market, along with stability.
The initial capital funding for this four-way joint venture was completed in June last year.
The primary clients of IMGC will be banks and housing finance companies (HFCs), who are at present responsible for much of mortgage lending in India.
After signing MoUs with the banks and HFCs, IMGC will provide credit guarantees to them on behalf of the home-loan borrowers.
The lending institutions, having taken guarantee cover from a mortgage guarantee company, can benefit from capital relief against loans through lower risk weightages.
This would enable lenders to give more loans. It would also help them get new customers who have until now not been part of the financial system.
Borrowers also benefit as they get home loans (guaranteed by the mortgage guarantee company) at better terms.
With mortgage guarantee, which is basically a risk-mitigant, a home loan borrower may be able to reduce his equity for taking a loan.
This is because the guarantee will provide the lender the freedom to lend more under the permitted loan-to-value norms.
The guarantees are invoked in case of default by home loan borrowers. Guarantee fee is the main revenue stream for a mortgage guarantee company.
The guarantee fee could be either fully borne by the borrower or shared between the borrower and the lender.