The Reserve Bank of India (RBI) has constituted a committee to review the existing state of mortgage securitization in India and suggest measures to deepen it.

The mortgage securitization market in India is mainly dominated by direct assignments among a limited number of market participants on account of various structural factors that affect both the demand and the supply side along with certain prudential, legal, tax and accounting issues.

The six-member committee on the development of housing finance securitisation market will be headed by Harsh Vardhan, Senior Advisor at Bain & Co. It will also assess the role of various counterparties, including the servicers, trustees, rating agencies, in the securitization process and suggest measures required.

Specific measures to facilitate secondary market trading in mortgage securitization would also be suggested. For a vibrant securitization market to develop, the RBI said it is imperative that the market moves to a broader issuance model with suitable structuring of the instruments for diverse investor classes.

However, international experience shows that it is critical to address the issues of misaligned incentives and agency problems that have resulted from information asymmetry problems between the originators and investors in the market, so as to not exacerbate systemic risk.

Inputs from PTI

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