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Mortgage Guarantee Company – Form of NBFC in India, Need To Know

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Introduction

Mortgage Guarantee Company (MGC) is a kind of Non-Banking Finance Company design and define as fiscal relief weapon to Government focused toward financial industry excellence. Though there is no such entity incorporated from Public to do such business but the platform is opened since 2008. Understanding the increasing default and non-performing assets on Banking and Financial Institution, precisely on Housing Finance the then Finance Minister introduced the concept and idea of MGC to relief the bad assets of Banking and Financial Institution.

It refers to those company incorporated under the Companies Act, 2013 and licensed by Apex Bank of Country with an prime objectives to transact the business of providing mortgage guarantee.

Guarantee means contract to perform the promise, or discharge the liability, of a third person in case of his default as per interpretation based on Indian Contract Act, 1872.

Further Mortgage Guarantee is read as a guarantee provided by a mortgage guarantee company for the repayment of an outstanding housing loan and interest accrued thereon up to the guaranteed amount to creditor institution, on the occurrence of a trigger event. Here trigger events refers to time on which borrower account is classified as non-performing assets in the books of the creditor institution.

The formation of Idea is same like Deposit Insurance Scheme to safe guard the amount of depositor of Bank and Financial Institution from its being default or fail to repay to honor the bare minimum relief to public (depositor) at large. Similarly this special vehicle NBFC is design to safeguard the existing Banks and Financial Institution from loss occur being Non-performing assets on Housing Loan Product to the extent possible. NBFC-MGC protect the loss on such loan of Bank and Financial Institution doing Housing Loan at large.

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Increasing default and non-performing assets list on housing loan is center of thought to introduced this type of NBFC in order to protect the Banking and Financial Service Industry of Country.

Read Our Blog: NBFC Non-Banking Financial Companies Registration in India

India Mortgage Guarantee Corporation Private Limited is single company incorporated under the Companies Act, 2013 and license by Reserve Bank of India to do Mortgage Guarantee Business. As on date, this is the first and last company been authorized by Reserve Bank of India to act as MGC-NBFC.

MGC required license from Reserve Bank of India to operate as MGC Company for which to begin with Net owned fund INR 100 Crore or more.

Over and above of Capital Adequacy, the Board of Director should possess the academic qualification and industry experience to run this business.  

Company should have fair practice code and board approved policy to cater this business from various lender institution. Tripartite agreement is entered in between creditor institution, creditor and MGC to manage such default or NPA housing assets.

There are no such severe competition but huge number of Housing Loan are already existed in Market and many more are been defaulted or NPA so business opportunity is there but the entry level requirement is with INR 100 Crore infusion to begin with. However as far as operational and profitability is concern there is huge market to start this business. 

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Author
Shamshad Alam
Experienced Digital Marketer with a demonstrated history of working in the internet industry. He likes to write about the latest technology trends, Skilled in Digital Marketing likes. Search Engine Optimization, SMO, SEM, PPC, Content Writing, and, Designing, etc.