NHB prepares mechanism to buy banks’ home loan portfolios

The National Housing Bank (NHB) is preparing a mechanism under which it has plans to buy housing loans from banks and housing finance companies (HFCs) and in turn it will provide liquidity and free up capital to these lenders. On the successfulness of this plan the housing finance market will be able to breathe easy as far as liquidity is concerned. NHB will be providing securities on the loan portfolios and sell the papers to institutional investors like banks and insurance companies.

In an interview to ET NHB executive director RV Verma said this is the first time NHB has planned to start such scheme. He said, “This is a new initiative which will provide liquidity to lenders and free up capital. This will ultimately channel more resources to the housing finance sector. This will also ease pressure on home loan interest rates.”

He explained the working of the structure. NHB will be holding purchased assets in its balance sheet for advance securitization. In this process, the portfolios will get more tested with NHB. It means NHB will work as a warehouse of mortgage assets need to be securitized and then will be sold to investors without diluting the standard of the assets.

On Monday a meeting was held between NHB brass and the lender in which the decision was taken to develop this new liquidity window. NHB will be providing this facility in parallel with the usual refinance window.

As indicated by preliminary discussions, the apex housing bank will be buying only the standard assets which are having low risk weight age. Loans which are less than or equal to Rs 30 lakh will be eligible for this arrangement. “We would like to buy loans which have minimum seasoning of at least six months,” Mr Verma said.

After the amendment in Securities & Contracts Regulation Act securitized instruments can be traded and this has given an added flexibility to the securitized market. “The seasoning of assets and trade ability will help fetch a good price for the securitized assets,” Mr Verma said, further adding that this whole exercise of securitizing will in turn help NHB continue funding over and above the exposure limit to individual entities.