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Moody's: Reserve Bank of India's recommendations on RMBS are credit positive

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Moody's: Reserve Bank of India's recommendations on RMBS are credit positive

The Reserve Bank of India's recommendations regarding residential mortgage-backed securities is credit positive for Indian RMBS, if implemented, Moody's said Sept. 23.

The central bank's housing committee's recommendations on Sept. 9 included standardizing loan servicing processes across home loan lenders to make it easier to transfer loan servicing from one provider to another, if the original provider fails. The rating agency said this move would be credit positive for Indian RMBS given the greater likelihood that a suitable replacement can step in and take the place of a failed operator.

In regard to the recommendation to standardize loan documentation criteria and establish minimum loan eligibility and disclosure requirements for RMBS deals, Moody's said such a move would enhance transparency in the Indian mortgage sector, reducing risks in the underlying loans backing RMBS deals.

The central bank also recommended linking home loan lending rates to a common external benchmark, such as its repurchase rate. The rating agency believes this would mitigate interest rate risk in RMBS transactions, as it would remove the interest rate mismatch between a lender's own benchmark rate and coupon rate.

Moody's added that if the central bank's recommendation on the tax treatment of securitization transaction is implemented, it would support the development of the Indian RMBS sector by removing uncertainty for originators and investors.