April 28, 2003
The National Housing Bank successfully completed the first mortgage backed securitisation of housing loans originated by BOB Housing Finance Limited. The MBS issue involved 3548 loans amounting to Rs.77.16 crores. The deal size involved Rs.59.65 crores (Class A Pass Through Certificates and balance amount of Rs.17.50 crores of Class B Pass Through Certificates) of a tenor of 108 months with a coupon of 6.89% p.a. payable monthly. The issue, which was launched on 22nd April 2003, was fully subscribed by institutional investors within four days of its launch in the market.
2. The transaction involves assignment of retail housing loans from the housing finance company to NHB. The loans, repayable in equated monthly instalments (EMIs) are packaged and offered to investors as Pass Through Certificates (PTCs) by NHB acting as Issuer and Trustee. The housing loans, which constitute the receivables to be securitised, are held by a Special Purpose Vehicle in the nature of a Trust, declared by NHB. The issue was rated LAAA(So) by ICRA. BOB Capital Markets Ltd was the Lead Arrangers to the Issue.
3. The securitisation of mortgages will help the originating company, viz., BOB Housing Finance Limited to improve liquidity and capital adequacy and hedge the credit risk. The upfront liquidity of approximately 59.65 crores can be deployed by the housing finance company in its operations leading to recycling of funds through the capital market intermediation. This will further lower the cost of funds of the housing finance company and help expand operations. The features of this issue included a longer door-to-door maturity of the PTCs at nine years. This has been done inter-alia with a view to develop the interest of potential investors such as Provident Funds that require long term, secure investments with adequate and timely returns.
4. The growing appetite of the investors for the mortgage backed securities reflects the confidence in NHB issued MBS paper. NHB is in the process of developing and testing its systems to handle various innovations in the transaction structures and has been developing models based on the data of the previous issues. The transaction being highly research intensive, NHB is closely monitoring the behaviour of the past MBS transactions supported by it, in the best interest of the investors and future market development. NHB has taken steps to issue the mortgage backed securities in dematerialised forms and facilitate their listing on major stock exchanges in India. This move is expected to create a deeper secondary market for mortgage backed securities in the country. The development of the mortgage backed securities market will lead to efficient allocation of capital to the strategically important housing finance sector.