Explain the need for a robust and transparent securitization in financial systems also discusses measures to develop the market in coming days.

Structure of answer:

  • • Introduction (say about securitization framework.
  • • The Committee on the Development of Housing Finance Securitization Market.
  • • Discuss that the mortgage securitization market in India is primarily dominated by direct assignments among a limited set of market participants on account of various structural factors impacting both the demand and the supply.
  • • Explain issues of misaligned incentives and agency problems resulting from information asymmetry problems between the originators and investors in the market
  • • Way forward.
  • • Conclusion.

Key points:

  • • To develop the housing finance securitisation market in India, the Reserve Bank of India (RBI) formed a committee to review the existing state of mortgage securitisation and suggest ways to develop the market further under the chairmanship of Harsh Vardhan, senior advisor, Bain & Co.
  • • The newly appointed committee has been mandated to examine the existing structure for mortgage-backed securitisation transactions in India, including legal, tax, valuation and accounting-related issues.
  • • It has also been asked to suggest necessary modifications to address the requirements of originators and investors.
  • • The panel’s terms of reference include analysis of “the prevalent structures including legal, tax, valuation and accounting related issues, and suggest necessary modifications to address the requirements of both originators as well as investors”.
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