What is a Mortgage Guarantee Company (MGC) in India? Notes

Mortgage Guarantee

A 'mortgage guarantee' is a kind of guarantee which is provided by a mortgage guarantee company for the repayment of an outstanding housing loan and interest accrued thereon up to the guaranteed amount to a creditor institution, on the occurrence of a trigger event.

Mortgage Guarantee Company

A 'mortgage guarantee company' is a company which primarily transacts and deals with the business of providing mortgage guarantee.

A 'mortgage guarantee company' is known as an MGC in short.

An MGC shall be deemed to be complying with the above mentioned requirement if at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business (including income which is derived from reinvestment of income generated from mortgage guarantee business).

Registration with RBI

In India, the registration and operations of mortgage guarantee companies are regulated and governed under the Mortgage Guarantee Companies (Reserve Bank) Guidelines, 2008.

In order to get registered, a mortgage guarantee company has to apply to the Reserve Bank of India (RBI) in prescribed form after payment of necessary fees, if any.

An MGC shall have a minimum net owned fund of Rs. 100 crore (Indian Rupees Hundred Crores) at the time of commencement of business, which will be reviewed for enhancement after three years.

An MGC shall at all times maintain a capital adequacy ratio of 10% of its aggregate risk weighted assets (RWA) of on balance sheet and risk adjusted value (RAV) of off-balance sheet items or any other percentage that may be prescribed from time to time by the RBI for this purpose.

An MGC shall at all times maintain at least 6% of its aggregate RWA of on balance sheet and of RAV of off-balance sheet items as Tier I capital.