Volumes in India's securitisation market rose 45 per cent to Rs 25,000 crore in 2015-16, driven by asset-backed papers, according to rating agency ICRA, reversing a slide seen over three years.
Securitisation involves pooling various types of contractual debt - such as residential mortgages, auto loans or credit card debt obligations - and selling the related cash flows to third-party investors as securities. These securities might be described as bonds or pass-through certificates (PTCs).
Another mode of retail loan transfer popular in India is direct assignment. In this arrangement, a pool of loan receivables is assigned directly to the investor with no special purpose vehicle formed. Hence, the issuer does not issue a tradable instrument for transaction.
ICRA has estimated that the volume of the bilateral retail loan pool assignments or direct assignment (DA) transactions grew 56 per cent to around Rs 42,000 crore in financial year 2015-16.
In FY16, private sector banks and foreign banks continued to be the key investors in the securitisation market, driven by the motive of priority sector lending.
Non-banking finance companies, high net worth individuals and private equity firms also invested in some transactions. Also, acceptability of lower-rated papers continued to increase, driven by increased participation by smaller originators and the prospect of higher yield for investors.
The share of non-AAA rated PTCs increased from 50 per cent to 60 per cent in FY16. Public sector banks were the key acquirers of retail pools under the DA route.
The loan types chosen for securitisation were primarily those that qualified as priority sector. Commercial vehicle and construction equipment loans continued to be the largest asset class accounting for close to half of the total volume of asset-backed securities.
Additionally, in FY16, the share of microfinance loans increased from 31 per cent in FY15 to 36 per cent in FY16. Tractor loans as well as car and utility vehicles loans were the other key category that contributed to 12 per cent of the securitisation volumes.
