ICICI Bank gains Rs 403.24 cr from sale of securitised assets

ICICI Bank, the largest originator of securitised assets, made a net gain of Rs 403.24 crore by selling loans through securitistion. The bank received consideration of Rs 10,285.66 crore for the securitised assets sold against the book value of Rs 9,485.62 crore.

In 2004-05, ICICI Bank had reported a net gain of Rs 397.61 crore on securitisation of Rs 16,341.22 crore loan assets. The net gain is about 10 per cent of the bank's net interest income of Rs 4,187.04 crore, in 2005-06.

ICICI Bank has a target of having net gains from securitisation of around 15 per cent. The bank's interest income in 2005-06 was Rs 13,784 crore and interest expenditure was Rs 9,597.44 crore. Its net profit for the year was Rs 2,728 crore.

Securitisation is a process by which banks and non-banking finance companies sell loan assets to a special purpose vehicle in return for an immediate cash payment.

In the second stage, the security interests representing claims on incoming cash flows from the pool of assets are repackaged and sold to third-party investors through the issuance of tradable debt securities.

The Reserve Bank of India (RBI) issued guidelines on securitisation of assets in February 2006, which require banks to allocate 100 per cent capital for credit enhancement provided.

Banks provide credit enhancement like cash collateral to enhance the rating of the securitised assets. Securitisation has slowed down since the RBI guidelines came to the fore, as the capital requirements are considered to be very stiff.