India's first mortgage cover co in the making
The Philadelphia-based Radian Insurance, National Housing Bank (NHB) and General Insurance Corporation (GIC) have teamed up to float India’s first mortgage insurance company with an initial capital of Rs 100 crore.
By Atmadip Ray, TNN |
KOLKATA: The Philadelphia-based Radian Insurance, National Housing Bank (NHB) and General Insurance Corporation (GIC) have teamed up to float India’s first mortgage insurance company with an initial capital of Rs 100 crore. The mortgage finance market in India is estimated to be of Rs 50,000 crore per annum.
The partners have sought clearances from both the Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (Irda), a top source in the know told ET. While Radian Insurance will hold 26% in the JV, the shareholding pattern of the domestic partners is still unknown.
“The shareholding will be finalised once we receive in-principle clearance from the regulators,” the source said. It is, however, learnt that GIC would hold the majority stake in the company. No official confirmation was available on this development. When contacted, NHB officials refused to comment.
“Radian was eager to pick up 49% stake,” the source said. However, foreign players are still not allowed to pick up more than 26% in a domestic insurance company.
The proposed JV will offer mortgage insurance products for the first time in the Indian housing finance market. Earlier in ’03, NHB had to abort its plan to float mortgage insurance, along with four foreign partners, as it failed to get the regulatory nod.
Mortgage insurance helps housing loan providers take cover against borrowers’ default risk. In turn, homebuyers are expected to get loans quickly, and that too with smaller monthly installments. In India, both housing finance companies (HFCs) and commercial banks cumulatively disburse nearly Rs 50,000 crore per annum to the housing sector.
Therefore, the new company would have the potential to sell mortgage insurance policies covering loans amounting to around Rs 50,000 crore, an analyst observed.
The company will sell policies to lenders of housing loans. The source said lenders would pay the premium, which will directly depend on the extent of loan-to-value (LTV) ratio. In simple words, this means lenders will have to pay a higher premium when LTV is higher.
LTV is ratio of loan amount to the valuation of the property under mortgage. At this juncture, it is, however, not clear whether customers will have to bear the premium burden or whether there would be an impact on interest rate.
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