In a strategic move to further propel India's housing finance market, the National Housing Bank (‘NHB’) has unveiled an ambitious initiative focused on promoting growth within the Residential Mortgage-Backed Securities (‘RMBS’) market, in consultation with Reserve Bank of India. This forward-looking endeavour involves the establishment of a distinctive entity named RMBS Development Company Limited (‘RDCL’), with an initial investment by NHB, being the single largest shareholder, along with other marquee investors including one of India’s largest Insurance Company, couple of leading private banks and few other large HFCs.
Grihum Housing Finance Ltd (‘Grihum’) would also be amongst the initial shareholders as the board of directors of Grihum have approved an investment in the equity share capital of RDCL of up to Rs. 35 crores. RDCL is expected to be incorporated soon and initialize its operations in FY25.
India's housing finance market, valued at around Rs. 30 lakh crores in FY23, is expected to double up soon. With the ongoing structural economic development and the urbanization trend in India, a significant portion of the growth is expected to be driven by the bottom of the pyramid i.e EWS, LIG & MIG segments. This growth would present a lucrative opportunity for Housing Finance Companies (HFCs) especially Affordable Housing Finance Companies (AHFCs) to expand their operations and tap the underpenetrated mortgage market and aid to the Government’s initiative of financial inclusion, by financing to customers who are not catered by the mainstream lenders.
As per the Finance Minister’s narrative, Indian economy is expected to reach ~USD 5 trillion by FY28. With an expected resilient mortgage penetration growth, the housing sector will play a pivotal role in contributing towards the Indian economy growth and in achieving the government's objective of making India the world’s 3rd largest economy.
This initiative by NHB serves as catalyst in the transformation of India's housing finance market. Its multifaceted objectives include investing in RMBS, facilitating the investment, issuance, and trade of RMBS, extending credit enhancement (including second loss credit enhancement) for RMBS transactions, and providing crucial liquidity support in the secondary market for RMBS transactions. This initiative by NHB not only signifies a collaborative effort amongst major financial institutions but also emphasizes a shared commitment to create a deep and vibrant market for RMBS in India by providing liquidity, stability and affordability to the Indian Housing Finance market.
“With the demand for housing loans reaching unprecedented levels, the traditional avenues of funding may face inherent limitations. As the housing finance sector anticipates a surge in financial requirements to meet the burgeoning housing demand, there arises a crucial need for diversification in funding sources. To bridge this demand gap in the coming years and propel sustained growth in the housing finance sector, RMBS emerges as a compelling solution which shall strengthen the ALM of the HFCs. RMBS not only provides a distinct funding profile to HFCs but also unlocks additional capital from diverse investor groups including Insurance companies, retirement funds, etc. NHB, with this exemplary initiative, will foster a sustained expansion in the dynamic and evolving affordable housing market.”, said Manish Jaiswal, Managing Director & Chief Executive Officer of Grihum.
