The policies adopted by the Reserve Bank of India (RBI) in the area of priority sector lending are driving up investments in securitisation transactions in the country with participation from banks showing a rise in recent years.
“As India's securitisation market builds a reputation and develops a history of stable issuance, we expect to see increased interest from other foreign investors in the next few years,” according to a report by S&P Global Ratings.
Foreign banks' demand for pass-through certificate (PTC) securitisations was partly because of their need to meet new priority sector lending targets, it said.According to CRISIL Ratings, securitisation volumes – including direct assignments and PTCs – in fiscal 2015-2016 returned to a 2008 high. More than 60 per cent of the almost Rs.700 billion in securitisation was from Indian banks’ purchases of direct assignments.
PTC volume also increased, accounting for 35 per cent of overall securitisation issuance and 48 per cent of the total priority sector lending assets in fiscal 2015-16.
The priority sector lending policy of the Reserve Bank requires that a certain portion of a bank's lending be made to specified sectors such as agriculture as well as micro-, small- and medium-sized enterprises. Banks typically achieve priority sector lending targets by either lending directly to these sectors or purchasing priority sector lending asset portfolios outright from originators — so-called direct assignment.More recently, foreign banks with 20 or more branches showed significantly more interest in buying PTCs to meet the RBI priority sector lending policy by March 2018.
