| Date : 23 Jan 2008 |
|Regulatory Framework for Mortgage Guarantee Company (MGC) |
may be recalled that while announcing proposals for the Union budget 2007-08,
the Finance Minister of India announced:
'Our people want
housing loans. Banks and housing finance companies that lend against mortgages
would have greater comfort if the mortgage can be guaranteed through a three way
contract among borrower, lender and guarantor. Regulations will be put in place
to allow the creation of mortgage guarantee companies'.
the Bank had framed and placed draft Guidelines on Registration and Operations
of Mortgage Guarantee Company on the web-site www.rbi.org.in on April 2, 2007
vide DNBS No. 6625 /03.11.01/2006-07 for comments/suggestion from public/stakeholders.
The major suggestions received were regarding the minimum
capital requirement, capital adequacy ratio, trigger point for acquisition of
non-performing assets by mortgage guarantee company, prescription regarding tripartite
agreement between MGC, creditor institution and the borrower to be replaced by
The suggestions were examined
with due regard to their import and accordingly certain modifications have been
- The earlier requirement that a mortgage guarantee
company shall have a minimum net owned fund of Rs.100 crore at the time of commencement
of business, which shall be augmented to Rs.300 crore within three years from
the date of commencement of business stands modified to state that a mortgage
guarantee company shall have a minimum net owned fund of Rs.100 crore at the time
of commencement of business. The issue of enhancement shall be reviewed after
- Earlier, a mortgage guarantee
company was to maintain twelve percent (12%) of its aggregate risk weighted assets
as the minimum capital adequacy ratio and at least eight percent (8%) of its aggregate
risk weighted assets as Tier 1 capital. On a review, the capital adequacy prescription
has been aligned with that prescribed for NBFC-ND-SI and CRAR has been stipulated
at 10% with Tier I stipulation reduced to 6%.
NPA related trigger point provisions have been formulated keeping in mind the
extent to which institutions are to be effectively covered by the product from
the risk. In view of the special status of the banking institutions in the country,
the criticality of banks for the economy and the recent global experiences of
interaction between banks and non-banking financial institutions even in advanced
countries, it was considered appropriate to retain this provision.
- The tripartite agreement has been provided as desired in
the budget announcement with inbuilt provision for operational convenience/ transparency.
In continuation of our stance
of consultative approach, the modified
guidelines are being placed on the Reserve Bank's website (www.rbi.org.in)
for study by a wider audience as a Draft. Comments/suggestions may please be sent
at the earliest but within 7 days of the publication of the modified guidelines
for consideration of the Reserve Bank.
Chief General Manager
Press Release: 2007-2008/969