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With liquidity constraints persisting, housing finance companies (HFCs) are eagerly anticipating the full-scale operations of RMBS Development Co Ltd (RDCL), which is expected to provide long-term liquidity at lower costs. Established in March 2024 and backed by the National Housing Bank (NHB), RDCL is supported by major lenders such as HDFC Bank, ICICI Bank, and Bajaj Finance. Its primary role is to strengthen the residential mortgage-backed securities (RMBS) market in India. Industry experts believe that RDCL will enhance market depth, improve investor confidence, and serve as a stabilising entity, similar to international models. The entity's structured approach is expected to address asset-liability mismatches and attract a broader investor base, ultimately benefiting the housing finance ecosystem.
As liquidity concerns continue to challenge the financial sector, housing finance companies (HFCs) are keenly awaiting the full-fledged commencement of RMBS Development Co Ltd (RDCL) to access long-term liquidity at more affordable rates. Its primary role is to strengthen the residential mortgage-backed securities (RMBS) market in India. Industry experts highlight that RDCL could play a crucial role in stabilising the market and fostering investor confidence by providing a transparent platform for mortgage-backed securities. Advertisement
Manish Jaiswal, Managing Director and CEO of Grihum Housing Finance, noted that RDCL's presence would not only strengthen market depth but also ensure the sustainable growth of India's housing finance sector.
RDCL was incorporated in March 2024 with backing from the National Housing Bank (NHB) and is supported by key financial institutions, including HDFC Bank, ICICI Bank, Aditya Birla Housing Finance, Bajaj Finance, IIFL Housing Finance, and Grihum Housing Finance. Despite a year having passed since its establishment, its large-scale operations are yet to take off. On January 23, 2025, RDCL received the Certificate of Registration (CoR) from Reserve Bank of India(RBI). The Company is expected to commence operations in March, 2025. The entity has been entrusted with expanding the RMBS market in the country.
A well-developed RMBS market can emerge as a reliable complement to existing sources of funding and liquidity for Primary Lending Institutions. During the last 5 years, individual housing loans outstanding have grown from INR 17.95 Lakh Crore as on March 31, 2019 to INR 33.19 Lakh Crore as on 31st March 2024 with a CAGR of 13.1% and this growth is expected to continue.
Ajay Jaiswal, Chief Operating Officer of IIFL Home Finance, highlighted that with RDCL's entry, HFCs would gain the ability to pool their mortgage portfolios and convert them into tradable securities, thereby unlocking capital market opportunities. He further explained that as more mortgages are securitised, additional capital would flow into the housing sector, enhancing overall financial stability.
Experts suggest that to instill investor confidence in the initial stages, RDCL could engage in co-investment operations by participating in RMBS issuances. RDCL could enhance the credit ratings of RMBS issuances by acting as a guarantor or providing partial guarantees, particularly benefiting lower-rated HFCs. Additionally, RDCL could ensure liquidity by purchasing or facilitating trades in RMBS instruments, thereby developing a dynamic secondary market, improving price discovery, and attracting institutional investors.
Another industry expert suggested that RDCL could adopt advanced securitisation techniques aligned with global standards to reinforce transparency and uniformity. He compared its potential impact to international entities such as Ginnie Mae and the European Stability Mechanism, which have successfully strengthened RMBS markets in their respective regions.
Beyond liquidity, RDCL is expected to assist HFCs in overcoming asset-liability mismatches, securing long-term funding, and gaining access to bond markets, which remain largely out of reach for most HFCs rated below AA. By improving the risk profile of securitisation transactions, RDCL will enable HFCs to attract investment from insurance companies, pension funds, and international investors, many of whom have traditionally been cautious about investing in lower-rated issuers.
Abhishek Dafria, Senior Vice President at ICRA Ratings, noted that the Reserve Bank of India (RBI) introduced revised securitisation guidelines in September 2021, easing requirements for RMBS issuance. These measures contributed to an increase in RMBS volumes, reaching INR 10,000 crore in the first nine months of FY24, compared to INR 6,000 crore in FY23. However, he emphasised that further initiatives are necessary to expand the investor base, as concerns regarding long tenures, prepayment risks, and interest rate fluctuations persist. He pointed out that RDCL's formation could help mitigate these challenges and encourage greater investor participation in the RMBS market.
While its large-scale operations are yet to commence, the industry remains optimistic that RDCL will drive structural improvements, making long-term funding more accessible and affordable for housing finance companies across the country.
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