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Ambarish Mukherjee

$50-million plan gets FIPB nod

New Delhi , March 28

The US-based Genworth Financial Inc will be launching residential mortgage guarantee products in the Indian market in the new fiscal. This is the first time that mortgage guarantee products are being introduced in India.

Earlier this month, the company has received permission from the Foreign Investment Promotion Board (FIPB) to introduce these products with an investment of $50 million.

Out of this, $7.5 million would be brought upfront and the remaining within the next 24 months, sources said.

Protecting lenders

Mortgage insurance products are insurance tools that help an individual buy a house with a low down payment - less than the usual average of 20 per cent.

These products are purchased by the lenders and paid for by the borrowers.

If, for any reason, the borrower stops making payments, mortgage insurance protects the lender from financial loss.

Because lenders have this protection, they are able to offer more mortgage loans with lower down payments. These are typically non-cancellable in nature and extend for the entire life of the loan.

RBI's disapproval

The clearance of Genworth's proposal by the FIPB has an unusual background in that the FIPB has permitted the company to set up a wholly owned subsidiary despite clear objections from the Reserve Bank of India.

The RBI, in a letter to the FIPB, had categorically stated that it must not approve Genworth's proposal.

The apex bank had said that there is no policy or regulatory framework in place in the country on the functioning of mortgage guarantee companies.

Therefore, it said, the request for establishing a subsidiary by the US-based company to offer residential mortgage credit default protection products "may not be approved."

IRDA mum on issue

The FIPB had sought the opinion of the Insurance Development and Regulatory Authority (IRDA) too, but the IRDA has refused to accept mortgage guarantees as insurance products.

Stating that such guarantees do not constitute insurance business, the IRDA said that it had no comment to offer on this issue.

More Stories on : Insurance | Real Estate & Construction | Housing Finance | Mortgage | RBI & Other Central Banks

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