In a landmark move for India's financial sector, the country has witnessed its inaugural listing of Residential Mortgage-Backed Securities (RMBS) through a bidding process, signaling a significant step towards deepening the domestic debt market and enhancing funding avenues for housing finance companies.
The National Housing Bank (NHB), India's housing finance regulator, anticipates raising between ₹100 billion and ₹200 billion (approximately $1.2 billion to $2.4 billion) in the current fiscal year through seven to ten such RMBS transactions.
Leading the charge, LIC Housing Finance successfully raised ₹10 billion via 20-year securities carrying a 7.26% monthly coupon. These securities, backed by a housing loan receivables pool worth ₹11.12 billion, were structured through a special purpose vehicle named India Residential Mortgage Trust 2025 01 and have been listed on the National Stock Exchange. The issuance received top-tier AAA (SO) ratings from CRISIL and CARE, underscoring investor confidence in the instrument's creditworthiness.
This development follows the establishment of the RMBS Development Company Limited (RDCL) by major financial institutions, including HDFC Bank and ICICI Bank, each holding a 7% stake. The RDCL aims to promote and develop the RMBS market by facilitating investments, issuance, and trading of RMBS, as well as providing credit enhancements and liquidity support in the secondary market.
The Reserve Bank of India (RBI) has also laid down a regulatory framework to govern such securitization activities, proposing a minimum holding period and retention rate for RMBS transactions, along with mandatory listing requirements for larger issuances.
Analysts view this as a pivotal moment for India's securitization landscape, expecting increased participation from long-term investors like insurers and pension funds. The successful listing of RMBS is anticipated to pave the way for other housing finance companies to explore similar avenues, thereby diversifying their funding sources and contributing to the overall growth of the housing sector.
As India's economy continues to expand, such financial innovations are crucial in meeting the growing demand for housing finance and in strengthening the country's financial infrastructure.