11th December, 2012:
Investment in AAA MBS will qualify as "infrastructure investment" by insurance companies. This may mean a major boost to mortgage backed securities market in India, which has been lying languid over the years.
Insurers are huge investors in the Indian market. As regards life insurance companies, they have a mandatory requirement of a 15% investment in infrastructure sector. Other insurers also make major investments in the infrastructure sector.
A PIB release quotes a written answer by the Finance Minister of State, Mr Meena, saying that insurance regulator IRDA will amend investment regulations for insurance companies to permit them to make higher investments in the infrastructure sector. Along with the same amendment, AAA mortgage backed securities will be given the same status an investment in infrastructure sector.
The supply side of the market for mortgage backed securities has completely been dry in India. Over the years, there have only been about a dozen mortgage-backed security issuances. Originators contend that the market does not have adequate appetite for long-term paper. With insurance companies added to the list of investors, long-term investment horizon will look much easier.
In fact, from viewpoint of insurance companies, investing in AAA MBS within the bracket of infrastructure investment will be much safer and better than investing in assets of sector like power, road, telecom, etc. where the risk of concentricity is very high. Indian MBS have not had a single case of default so far. In fact, mortgage loans have, by and large, not seen defaults exceeding 0.5%.
Giving a stimulus to infrastructure investments in India has been on the cards for quite a while – see here.
[Reported by: Vinod Kothari]