RMBS Development Company Set for Launch with Rs 500 Crore Initial Equity

The National Housing Bank (NHB)-promoted RMBS Development Company is poised to commence operations with the majority of its promoter shareholders on board. These financial institutions have collectively contributed the initial equity capital of Rs 500 crore for the company, which will serve as a pooled entity for mortgages.

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Understanding RMBS

RMBS, or residential mortgage-backed securities, are debt-based assets backed by the interest paid on residential loans. The primary objective of the RMBS Development Company is to foster the growth of the RMBS market by investing in these securities and facilitating their trading. RMBS represent aggregated home loan portfolios supported by principal and interest payments from individual borrowers.

Lenders typically pool these loans and sell them as pass-through securities, which frees up their lendable capital.

Promoter Shareholders and Equity Structure

According to an NHB source, the proposed RMBS Development Company is expected to be launched in March 2023, as all the equity investors, comprising 10 financial institutions, are now in place. NHB holds the majority equity stake of 39%, followed by LIC with 10%. The remaining 51% is distributed among other financial institutions.

HDFC Bank and ICICI Bank were the first to join the company, each acquiring a 7% stake. Bajaj Finance also holds a 7% stake. Earlier this week, Grihum Housing Finance (formerly Poonawalla Housing) joined with a 5% holding.

Other equity holders include Tata Housing, Hero Housing, Shriram Housing, IIFL Housing, and Aditya Birla Housing.

Initial Paid-Up Equity Capital

The initial proposed paid-up equity capital for the RMBS Development Company stands at Rs 500 crore.

Catalyzing the Housing Finance Market

This initiative aims to transform the housing finance market through its multifaceted objectives. These include investing in RMBS, facilitating the investment, issuance, and trade of RMBS, providing credit enhancement, including second loss credit enhancement, for RMBS transactions, and offering crucial liquidity support in the secondary market for RMBS transactions.

The establishment of the RMBS Development Company marks a significant step in developing the RMBS market in India. With the participation of leading financial institutions and a substantial initial equity capital, the company is well-positioned to drive growth and liquidity in the housing finance sector.