What changed
RBI specified Mortgage Guarantee Companies as NBFCs under Section 45 I(f)(iii) of the RBI Act, effective January 15, 2008. Simultaneously, it exempted these companies from Sections 45-IA (registration), 45-IB (liquid assets), and 45-IC (reserve fund) of the Act, as a dedicated regulatory framework is being developed.
What it means for you
Banks and housing finance companies can now use mortgage guarantees from RBI‑registered MGCs, as the RBI has classified MGCs as NBFCs and exempted them from Sections 45‑IA, 45‑IB and 45‑IC pending a separate regulatory framework.
What you must do
- Review your current mortgage lending practices to assess how MGC guarantees can reduce credit risk and capital requirements.
- Prepare to engage with RBI-registered MGCs once the separate regulatory framework is finalized.
- Update internal policies to recognize mortgage guarantees as eligible credit risk mitigants for housing loans.
- Monitor RBI notifications for the detailed MGC regulatory framework to ensure compliance.
Who it affects
Banks offering housing loans, Housing finance companies, Mortgage Guarantee Companies (MGCs), Borrowers seeking housing loans
What is a Mortgage Guarantee Company (MGC)?
An MGC is a company registered with RBI under a notified scheme that provides a guarantee on mortgage loans through a three-way contract among borrower, lender, and guarantor, thereby reducing lender risk.
Why are MGCs exempted from Sections 45-IA, 45-IB, and 45-IC?
RBI exempted these provisions because a separate, comprehensive regulatory framework for MGCs is being prescribed, which will address registration, liquidity, and reserve requirements specifically for these entities.
How does this benefit banks and housing finance companies?
Mortgage guarantees provide additional comfort to lenders, potentially lowering credit risk and capital requirements for housing loans, and encouraging more lending in the housing sector.