Securitisation mart hots up

The securitisation market is expected to see hectic activity this year after a lull of two years.

The volumes in the new issuance market are expected to cross the $6 billion mark, thanks to the rising interest rates scenario. The active issuers such as the ICICI Bank, HDFC Bank and Cholamandalam DBS among others are back in the market.

Additionally, the government's move to amend the Securities Contract (Regulation) Amendment Bill, 2007 to facilitate the listing of securitised papers on stock exchanges will help create a secondary market for securitised papers in the long term.

The volume of new issuance during FY'05-07 was in the range of $4 to $5 billion. Crisil expects the volumes this year to cross the $6 billion peak recorded in 2004-05.

"With the development of a secondary market, the investors would stop demanding a premium for holding the securitised paper till maturity. This would bring a AAA rated securitised paper at par with AAA corporate bond,'' said an industry expert.

The securitisation market had slowed down in the last two years on account of the RBI guidelines which restricted banks from booking upfront gains and immediately releasing capital. The rising interest rate scenario also took a toll on the market.

"The market has picked up from the second half of last year as active players have started coming back due to funding requirements and risk management. Since the issuers have an underlying asset yielding a good yield, they are now in a position to offer better returns to the investor,'' said Prasad Koparkar, head, structured finance ratings, Crisil.

The coupon rate on securitised paper has risen from nine per cent to 11 per cent. With the rising tenure of loans, the tenure of the securitised papers has also risen to 22 months to 24 months from 15 months to 16 months. Hence, there's a need for long term investors to enter the market.

"The Reserve Bank of India guidelines on securitisation are strict, but they are at par with international practices. The slowdown in the securitisation market was because the stock of assets in the books of banks at that point in time was at lower rates and the investors were demanding a higher rate of returns on securitised paper,'' said S Shridhar, chairman, National Housing Bank.

"The legislative action will deepen the market as new investors will be able to enter the market,'' he added.