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The Indian retail asset securitisation market rated volumes have decreased marginally by around 6 per cent to Rs 28,300 crore in FY14 as against Rs 30,300 crore in FY13, Care Ratings said in a report.
Securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralised mortgage obligation (CMOs) to investors.
In FY14 although there was greater clarity with the introduction of a new tax regime in the Union Budget, the market started moving towards the ‘direct assignment’ route due to a combination of factors, making it an attractive proposition for both originators and investors, the report said.
Banks continue to be major investors in securitisation transactions, primarily driven by their need to meet priority sector lending requirements.
Commercial Vehicle (CV), Construction Equipment (CE) and Passenger Vehicle (PV) loans worth Rs 17,770 crore were securitised in FY14. A significant part of these loans has been extended to Small Road Transport Operators, which qualifies as advances to priority sector. The share of CV/CE/PV loans has seen a reduction in FY14 over the previous year due to the slowdown in fresh disbursements since H2 FY13.
The demand for priority sector loans continued to be the driving force of the retail asset securitisation market in India, but the recent RBI circular may reduce the demand for priority sector assets going forward.
RBI norms
The RBI circular for change in treatment of Rural Infrastructure Development Fund (RIDF) and certain other funds under priority sector guidelines has come as a relief for banks as it would reduce their dependence on securitisation for meeting shortfalls in FY15. But this could have a negative impact on new securitisation issuances going forward, according to Care Ratings.
Also, the reset norm of credit enhancement will protect investors providing capital relief for the originators and the guidelines will ensure the credit enhancement reset is at a level that retains the ratings. This will be positive for the growth of the securitisation market in India in the long term.
The report highlighted that there has also been a deterioration in the performance leading to banks becoming more cautious while disbursing new loans. Fresh disbursements are expected to pick up in FY15 with the expected improvement in the economic scenario. But the portfolios would achieve the desired seasoning required for securitisation only towards the year-end.
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