Reflecting the economic slowdown, the market for securitisation dipped for the second year in a row. Overall volume declined 22 per cent to Rs 42,600 crore in 2009-10 over the previous year, according to rating agency Icra.
The value of securitisation deals done in FY10 shrunk mainly on two counts. First, the Reserve Bank of India’s proposed stringent norms for retaining loans on books kept lenders away. This hit the corporate loan securitisation market. Second, the low credit off-take meant lenders and financiers were blessed with comfortable resource position, reducing needs to offload some assets to get resources.
Securitisation is the process of conversion of existing assets or future cash flows into marketable securities.
The value of total securitisation deals in 2008-09 was Rs 54,470 crore, lower than Rs 63,730 crore in 2007-08.
Asset-backed securities (ABS), including loans given for cars, commercial vehicles, two-wheelers, and unsecured personal loans showed steady signs of recovery. The value of ABS deals was Rs 20,970 crore, up from Rs 13,580 crore a year ago.
The securitisation of residential mortgage-backed securities (RMBS) — home loans — also gained momentum.
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The number of loans sell-down (LSOs) — mostly corporate loans — that had formed a chunk of securitisation in 2008-09, fell in FY10. LSO is a relatively simple transaction where banks (mostly foreign or private banks) or non-banking finance companies securitise the receivables from a single corporate loan.
RBI has proposed tough norms regarding the minimum lock-in period and the minimum retention requirement affecting LSO transactions, which were mostly short-term in nature.
Concerns relating to credit quality and secondary market illiquidity also contributed towards curbing investors’ appetite for LSOs for a major part of 2009-10, Icra said.
The ABS transactions, which was overtaken by LSO as the largest product class in FY09, re-emerged as the dominant product class in FY10. The share of ABS improved to 49 per cent in the reporting year from 25 per cent in 2008-09. The share of residential mortgages also improved to 15 per cent of total issuances in FY10.
| DISTRIBUTION PATTERN Trend in structured Finance (securitisation) in select categories | |||||
| Category | 2006 | 2007 | 2008 | 2009 | 2010 |
| Asset backed securities | 17850 | 23420 | 31320 | 13580 | 20970 |
| loan sale-offs | 2100 | 11900 | 31820 | 36440 | 14580 |
| Total issuances | 24960 | 36930 | 63730 | 54470 | 42590 |
| Per cent growth (%) | 48 | 73 | -15 | -22 | |
| Figures in Rs crore at end of March Source: Icra estimates | |||||
Though the subdued economic and business conditions tempered the need to securitise loans, regulatory factors like the priority sector lending target for banks and the resultant acquisition of such loan pools from non-banking finance companies continued to drive transactions.
Going forward, Icra said there was potential for ABS and RMBS volumes to grow. As originators scale up their lending volumes, securitisation will continue to be an important funding tool for them. Investors’ confidence to take exposure to securitised papers would come handy.