NHB brings in strategic partner for mortgage guarantee biz

NHB brings in strategic partner for mortgage guarantee biz
Hindu Business Line, January 6, 2010, Page 6

Foreign player to provide technical expertise; operations likely to start by June.

--------------------------------------------------------------------------------
In the mortgage guarantee company, NHB will be the single largest shareholder but its stake will be less than 50 per cent. The technical partner will also have a large share.
--------------------------------------------------------------------------------

Remya Nair, Mumbai

National Housing Bank has roped in another foreign partner for its mortgage guarantee company, which is expected to commence operation by June.

Unlike the two existing foreign investors —Asian Development Bank and International Finance Corporation — the third one is believed to be an experienced international player in mortgage guarantee business and is a “strategic partner”.

Final negotiations

“We are in the process of tying up with the strategic partner. The negotiations have reached the final lap. The international partner will provide the technical expertise needed to run the mortgage guarantee company,” said Mr R.V. Verma, Executive Director, National Housing Bank.

Mr Verma, however, did not disclose the name of the partner.

With the tie-up in place, NHB is planning to commence operations of its mortgage guarantee company by June, he said.

“Earlier, the plan was to bring in two international investors, besides ADB and IFC. But now we have decided to bring in only one strategic partner who brings in the requisite expertise,” Mr Verma said.

Initially, NHB was supposed to hold 26 per cent stake and ADB and IFC were to hold 13 per cent stake each. Canada Mortgage and Housing Corporation and AIG-subsidiary United Guarantee Company were to be the other partners providing technical expertise.

However, NHB began scouting for new partners after the two technical partners exited.

In the mortgage guarantee company, NHB will be the single largest shareholder but its stake will be less than 50 per cent. The technical partner will also have a large share, said Mr Verma.

ADB and IFC will have a 10-13 per cent stake each in the company.

Paid-up capital

The mortgage guarantee company will have an initial paid-up capital of Rs 120 crore. This could increase to Rs 750 crore in the next few years depending on business expansion, he said.

The mortgage guarantee company was envisaged in 2002 to compensate banks and housing finance companies in case of defaults by the home loan borrowers.

The guarantee will help banks to securitise their loans more easily as the mortgage guarantee company will encourage standardisation of loan documents and processes. It will also provide additional credit enhancements to the portfolios of the lenders, besides improving credit flow to borrowers in the high-risk category.

Banks can lend to high risk customers without having to worry about potential defaults, Mr Verma said.