Sovan Mandal, Chief Business Officer

India Mortgage Guarantee Company (IMGC) has braced itself to pay claims that may arise if lenders face delinquencies due to the pandemic-related job losses and pay cuts among borrowers of home loans guaranteed by it, said a top official.

IMGC, which is registered with the Reserve Bank of India (RBI), provides guarantee for the repayment of an outstanding housing loan and interest accrued thereon up to the guaranteed amount to a bank or a housing finance company (HFC)on the occurrence of a trigger event.

“We are pretty much prepared to pay the claims because as per RBI guidelines we set aside capital the moment we issue a guarantee for a loan,” said Sovan Mandal, Chief Business Officer.

A mortgage guarantee company (MGC) has to maintain a capital adequacy ratio of 10 per cent.

“The regulator ensures that we have enough capital to pay the claims. In our pricing model, we take into account different risk scenarios.

“So, we are pretty much in control in terms of whatever claims have to be paid,” explained Mandal.

Lenders are expecting some of the borrowers who opted for the six-month regulatory moratorium on repayment of loans to become delinquent once the moratorium ends on August 31.

Sweet spot

Mandal noted that the cover can go up to 100 per cent also because the assets are secured (there is an underlying property) and the customer has skin in the game by way of self-finance (own equity, which is typically 20 per cent of the property value).

Given that the customer has already paid 20 per cent, most lenders take first loss cover of 20 to 30 per cent of the principal outstanding.

“So, unless the property price corrects 40 to 50 per cent, which is very unlikely, the current level of cover taken by the lenders is enough as of now,” said Mandal.

The mechanics of claims

A lender can invoke the guaranteethe moment a home loan borrower is 90 days past due as per the non-performing asset (NPA) classification norm.

“So, if a customer account becomes NPA, we pay the three equated monthly installments (EMIs) outstanding to the lender. As the overdue period increases, we keep paying the EMIs to the lender.

“The final claim settlement happens when the loss crystallisation occurs. So, we pay the lender either the actual loss or the guaranteed amount, whichever is lower,” said Mandal.

IMGC has extended guarantees on home loans aggregating ₹8,500 crore so far. Of this, bulk of the guarantee is ‘on-book’ guarantee, which is given to a group of loans that have already been originated.

It is now focussing on flow or ‘loan by loan’ guarantee, which is given at the time of fresh loan origination to a home buyer.

Mandal said IMGC expects to double its book size (of loans guaranteed by it) in three years.

The company’s authorised capital was upped from ₹250 crore to ₹750 crore in April 2020. This move is probably with an eye on fresh capital infusion to support growth in book and possible rise in claims.

IMGC is a four-way joint venture between the Genworth Financial Mauritius Holdings Limited (43.72 per cent stake), National Housing Bank (32.51 per cent), International Finance Corporation, and Asian Development Bank (11.89 per cent each).

Published on June 22, 2020