With the robust Indian economy and consequent increase in
housing loans vis-a-vis the ambivalent stand of the Government
of India ("GOI") on recognizing mortgage insurance
and related products to protect the creditors on the occurrence
of default by borrowers, the Reserve Bank of India
("RBI") has finally introduced the model of Mortgage
Guarantee Companies ("MGC") in India.
A Mortgage guarantee company is essentially a company which
primarily transacts the business of providing Mortgage
A Mortgage guarantee is basically a guarantee provided by a
mortgage guarantee company for repayment of an outstanding
housing loan and interest accrued thereupon to the guaranteed
amount to a creditor institution on the occurrence of a default
by the borrower.
All mortgage guarantee companies are subject to the
regulatory supervision of the RBI
The highlights of the latest mortgage guarantee guidelines
released by RBI vide its notification dated 15th
February, 2008 are as follows:
Mortgage guarantee contracts are required to be
tri-partite among the borrower, the creditor and the mortgage
guarantee company in the nature of contracts of guarantee as
per Indian Contract Act, 1872 and are also required to be
irrevocable and unconditional. The guarantee obtained must be
free from coercion, undue influence, fraud and
Mortgage guarantee contracts guarantee the repayment of
the principal and interest outstanding in the housing loan
account of the borrower, up to the amount of guarantee.
Mortgage guarantee companies are not allowed to carry on
insurance business of any nature.
Every foreign investor intending to set-up a mortgage
company requires prior approval of the Foreign Investment
Promotion Board (FIPB).
A mortgage guarantee company must have a minimum net
owned fund of Rs. 1 Billion (US $ 25 Million) before
commencing the business of providing mortgage guarantee and
the same is subject to be reviewed for enhancement every 3
Mortgage Guarantee Companies are also required to maintain a
capital adequacy ratio of (10%) of its aggregate risk weighted
assets of on balance sheet and of risk adjusted value of
off-balance sheet items or any other percentage that may be
prescribed by the RBI for this purpose, from time to time.
Mortgage guarantee companies prior to offering mortgage
guarantees are required to conduct a detailed due-diligence in
order to satisfy itself :
The validity of the security on the guaranteed loan.
The credit worthiness of the borrower, title to the
property and marketability of the property.
That the creditor has verified the use of the land on
which a house or residential property is constructed or
proposed to be constructed.
That the creditor has verified and obtained a copy of the
permission obtained by the borrower from the proper
authorities for the purpose of construction of the house;
That the loan granted by the creditor is not more than
90% of the value of the property.
It would be interesting to see how the Indian market accepts
and adopts the RBI mortgage guarantee guidelines / regulations
and whether similar insurance products would be introduced or
not by the Indian Insurance Regulator in the near future.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).