Risk weight on FI mortgage loans cut to 50%

This, however, will be in cases where the assets underlying the MBS are the residential loan assets of the housing finance companies which are recognised and supervised by the National Housing Bank and if MBS satisfy certain terms and conditions.

The Reserve Bank of India has also clarified that the loans by FIs against the security of commercial real estate would continue to attract 100 per cent risk weight.

Further, if the assets underlying the MBS also include commercial properties, then financial institutions’ investment in such MBS would attract 100 per cent risk weight. The risk weights for housing loans granted by the financial institutions to their own employees would, however, remains unchanged.

Pertinent to note here is that under the extant capital adequacy norms, financial institutions’ loans for their employees attract 20 per cent risk weight when the loans are fully secured by superannuation benefits and the mortgage of property.

The Reserve Bank of India has also specified terms for MBS for availing of the benefits of 50 per cent risk weightage. The right, title and interest of a HFC in securitised housing loans and receivables thereunder should irrevocably be assigned in favour of a Special Purpose Vehicle (SPV) or Trust and the property underlying the securitised housing loans should be held exclusively, on behalf of and for the benefit of the investors, by the SPV or Trust.

The SPV or Trust should be entitled to the receivables under the securitised loans with an arrangement for distribution of the same to the investors as per the terms of issue of MBS. Such an arrangement may provide for appointment of the originating HFC as the servicing and paying agent, the Reserve Bank of India said.