Mumbai, Nov. 15 (PTI): National Housing Bank (NHB) is likely to approach the Reserve Bank of India with a proposal to reduce risk weightage for mortgage backed securities (MBS), a senior NHB official said today.
“Currently, risk weightage for loan folio of originator and investment in MBS paper was 50 per cent, though quality of securitised paper was much higher due to credit enhancement facility,” NHB executive director R. V. Verma said while addressing a seminar on securitisation.
The securitisation of home loan folio through MBS had released more funds and reduced their cost, Verma said.
The apex bank had already reduced the risk weightage, providing housing finance entities more room to give affordable home loans, he said.
On the issue of permitting foreign investment in MBS, Verma said, “this could happen in the long term. Our first priority is to increase domestic participation.” NHB official warned banks from “going in to overdrive” in extending home loans as they had to be careful about profile of the borrowers. “While providing credit for a housing, a crucial sector of economy, is important, banks have to improve their credit appraisal skills and risk management systems”, he said.