India's first mortgage-backed security issue finally arrived at the end of August, after numerous delays and a couple of years in the making. The country's governing body for housing finance, the National Housing Bank, was the issuer and SBI Capital Markets acted as arranger and underwriter.

The deal was worth Rs1 billion ($22 million), was rated AAA by Crisil and was backed by residential mortgages originated by Housing Development Finance Corp. and LIC Housing Finance.

According to an SBI Caps official, it was placed with Life Insurance Corp. of India, LIC Mutual Fund, Bank of Boroda, Punjab National Bank, State Bank of Hyderabad and Indian Overseas Bank.

The deal has a maturity of seven years and pays a coupon of 11.85%. This is an increase on the coupon that was set when SBI Caps initially tried to launch the deal in early August. That attempt failed because it came at a time when the Indian central bank raised interest rates.

"It is sold now and it was very well received by investors," said the official. "It's taken a long time, but this is a young market and an entirely new asset class, so that was inevitable. It is more important that we have got it done, and it is likely to be followed by many more such deals."

Indeed, several housing finance companies have already expressed interest in doing similar deals and analysts expect that despite the many difficulties which surround Indian MBS there will be no shortage of deals in the future as Indian housing finance takes advantage of a new funding technique.

"It is not the most efficient environment in the world for MBS, which is one reason that the coupon on this deal is relatively high, but things can only get better and the authorities are working on regulatory improvements," said a rating agency expert in Bombay. "There is no doubting the considerable demand from the housing finance companies and we should see a lot of growth in this market."

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