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The Emergence of RMBS Development Company Limited Revolutionizes the Residential Mortgage-Backed Securities Market

El surgimiento de RMBS Development Company Limited revoluciona el mercado de valores respaldados por hipotecas residenciales

In an innovative announcement, the establishment of RMBS Development Company Limited (RDCL) promises to revive the residential mortgage-backed securities (RMBS) market. RDCL aims to address the key concerns that have kept investors away from the RMBS market and stimulate its growth.

ICRA projects that RMBS’s share in the overall market will be less than 15% of the 1 trillion rupees market by fiscal year 2024, indicating untapped potential for the RMBS market. The development of RMBS is crucial to support housing finance companies in meeting the country’s housing needs.

The revised securitization guidelines by the Reserve Bank of India in September 2021 have already provided relief to RMBS issuers by reducing the minimum retention period and retention amounts. This has resulted in an increase in volumes, with RMBS reaching approximately 10,000 crore rupees in the first 9 months of fiscal year 2024 compared to 6,000 crore rupees in fiscal year 2023. However, more work needs to be done to fully unlock the market’s potential.

RDCL will be involved in various activities, including investing in RMBS, facilitating RMBS investment and trading, offering credit enhancements for RMBS transactions, and providing liquidity support in the secondary market. Renowned financial entities such as HDFC Bank Limited, ICICI Bank Limited, and Bajaj Finance Limited will participate as minority shareholders.

While the precise details of RDCL’s business plans and evaluation metrics for RMBS are yet to be known, it is expected that the entity will be established before March 2024 with a substantial net worth of 500 crore rupees. This marks a significant milestone in the growth of the residential mortgage-backed securities market and promises a bright future for housing finance in the country.

Key Terminology:

1. Residential Mortgage-Backed Securities (RMBS) – Securities backed by mortgages on residential properties. They provide investors with a stake in the cash flows generated by mortgage payments.

2. Pass-Through Certificate (PTC) – A type of security that represents a beneficial interest in a pool of mortgages or similar assets. The income generated by the underlying assets is “passed-through” to certificate holders.

3. Securitization – The process of converting illiquid assets into tradable securities to facilitate their trade and investment.

4. Secondary Market – The market where previously issued securities are bought and sold by investors, rather than directly from the issuer.

Frequently Asked Questions (FAQ) about RMBS Development Company Limited (RDCL):

1. What is RDCL and what is its objective?
RDCL is a company that has been created to revive the residential mortgage-backed securities (RMBS) market. Its main objective is to address the concerns of investors in the RMBS market and stimulate its growth.

2. What is the potential of the RMBS market in India according to ICRA?
ICRA projects that RMBS’s share in the overall market will be less than 15% of the 1 trillion rupees market by fiscal year 2024, indicating untapped potential for the RMBS market.

3. How has the Reserve Bank of India eased concerns for RMBS issuers?
The Reserve Bank of India has revised securitization guidelines in September 2021, which have reduced the minimum retention period and retention amounts for RMBS issuers. This has resulted in an increase in RMBS volumes in the market.

4. What will be the activities of RDCL?
RDCL will be involved in various activities, including investing in RMBS, facilitating RMBS investment and trading, offering credit enhancements for RMBS transactions, and providing liquidity support in the secondary market.

5. Which financial entities will participate as shareholders in RDCL?
Renowned financial entities such as HDFC Bank Limited, ICICI Bank Limited, and Bajaj Finance Limited will participate as minority shareholders in RDCL.

6. When is RDCL expected to be established and what will be its initial net worth?
RDCL is expected to be established before March 2024 and will have a substantial net worth of 500 crore rupees.

Key Terminology:

1. Residential Mortgage-Backed Securities (RMBS) – Securities representing a stake in the cash flows generated by mortgage payments on residential properties.

2. Pass-Through Certificate (PTC) – A type of security that represents a beneficial interest in a pool of mortgages or similar assets. The income generated by the underlying assets is “passed-through” to certificate holders.

3. Securitization – The process of converting illiquid assets into tradable securities to facilitate their trade and investment.

4. Secondary Market – The market where previously issued securities are bought and sold by investors, rather than directly from the issuer.

For more information, you can visit the following links related to the main domain:

ICRA – Rating Agency
Reserve Bank of India
HDFC Bank Limited
ICICI Bank Limited
Bajaj Finance Limited