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Friday, Sep 13, 2002

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Housing loans to individuals less risky

THE RBI has communicated to term-lending and refinancing institutions, under the capital adequacy norms, the risk weight for housing loans and mortgage-backed securities. Under the extant capital adequacy norms, the loans granted by the FIs against the mortgage of residential houses as well as commercial properties attract 100 per cent risk weight except the loans granted to their own employees fully secured by superannuation benefits and the mortgage of flats/houses which attract 20 per cent risk weight.

Also, the norms do not prescribe any specific risk weight or special dispensation for the investment by the FIs in the mortgaged backed securities (MBS) issued against the housing loans granted by the housing finance companies.

To liberalise the prudential norms in keeping with the international practice, it has been decided, with immediate effect, that the housing loans extended by FIs to individuals against the mortgage of residential housing properties would attract a risk weight of 50 per cent; and the investments by FIs in the MBS would attract a risk weight of 50 per cent (in addition to the 2.5 per cent risk weight for market risk) provided the assets underlying the MBS are the residential loan assets of the housing finance companies which are recognised and supervised by the National Housing Bank; and the MBS satisfy specified terms and conditions.

Loans granted by the FIs against the security of commercial real estate would continue to attract 100 per cent risk weight. If the assets underlying the MBS also include commercial properties, then FIs' investment in such MBS would attract 100 per cent risk weight. The risk weights for the housing loans granted by the FIs to their own employees would, however, remain unchanged.

Terms and conditions to be satisfied by the MBS for being eligible for a reduced risk weight of 50 per cent are: The right, title and interest of a housing finance company (HFC) in securitised housing loans and receivables thereunder should irrevocably be assigned in favour of a special purpose vehicle (SPV)/trust; the housing properties (initially mortgaged to HFCs) underlying the securitised housing loans should be held exclusively, on behalf of and for the benefit of the investors, by the SPV/trust; the SPV or trust should be entitled to the receivables under the securitised loans with an arrangement for distribution of the same to the investors as per the terms of issue of MBS; the loans to be securitised should be loans advanced to individuals for acquiring/constructing residential houses, which should have been mortgaged to the HFC by way of exclusive first charge, and so on.

Investing institutions have been cautioned to guard against the concentration of exposure to a particular industry/sector, institution or a geographical area. (Notification No DBS FID No C-6/01.02.00/2002- 03 dated August 31, 2002)

CE advance ruling arrives

The Central Government has announced the Central Excise (Advance Rulings) Rules, 2002. An application for obtaining an advance ruling under sub-section (1) of Section 23C of the Central Excise Act is to be made in Form AAR (CE) - for `Application for Advance Ruling (Central Excise)'. Application should be filed in quadruplicate and accompanied by a fee of Rs 2,500.

Among the particulars required to be furnished in the application are: Details about the resident(s)/non-resident(s), setting up the joint venture, PAN and registration(s) of JV parties, questions(s) of law and/or fact relating to an activity proposed to be undertaken on which the advance ruling is required, statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the question(s), and so on. The applicant has also to declare that the question(s) on which the advance ruling is sought is/are not pending in any case before any Central excise authority, appellate tribunal or any court. (Notification No 28/2002 NT dated August 23, 2002).

Similarly, Notification No. 55/2002 NT dated August 23, 2002 has ushered in Customs (Advance Rulings) Rules, 2002.

D. Murali

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