Securitisation potential seen at Rs 60,000 crore

The banking system's liabilities exceed their maturing assets by around 17 per cent over a three year horizon and securitisation could reduce this asset-liability gap by as much as 23.4 per cent, says a Crisil study.

Securitisation allows banks to transfer maturity-related risks such as those relating to prepayment and conversion to third party investors.

Crisil, which analysed the ALM (asset-liability management) profile of the Indian banking system, has estimated that the banking system has a securitisation potential of over Rs 60,000 crore.

The rating agency said the deposits, which constitute around 80 per cent of the banks' balance sheet size, are largely sticky and have high renewal levels. Hence, the effective mismatch in the banks' ALM profile would be considerably lower.

"If we exclude foreign banks, the negative ALM gap increases to 19.3 per cent. This is because foreign banks have a relatively more comfortable ALM profile than Indian banks on account of their higher networth levels, which get classified in the longest maturity bucket and hence, provide comfort to the ALM profile," Crisil said.

It pointed out that the networth to total assets ratio for foreign banks is 11.5 per cent as compared to 5.8 per cent for the overall banking system.

The ALM gap (as a percentage of total assets) for various categories of Indian banks in the zero-to-three years maturity bucket are: State Bank Group (around -15 per cent); Other nationalised banks (around - 25 per cent); old private sector banks (- 25 per cent); new private sector banks (-22 per cent); and all banks (-17 per cent).

Crisil has identified non-performing assets; investments in bonds and industrial loans; credit card receivables; housing, car and employee loan receivables as the asset classes from the banks overall asset classification as those that lend themselves to securitisation.

The agency has estimated that foreign and new private sector banks have the highest potential for securitisation at 10-12 per cent of their asset base as compared to the overall securitisation potential of four per cent for the banking system.

The securitisation potential for SBI and associate banks is pegged at three per cent; other nationalised banks and old private sector banks (two per cent each).

The securitisation benefit on the ALM profile of banks ranges from 9 per cent for old private sector banks and nationalised banks to 63 per cent for new private sector banks. This is largely because of the higher securitisation potential envisaged for new private sector banks.

Securitisation as a financial management tool offers multifarious advantages to banks in areas like exposure management and capital management.

Banks can also use securitisation to generate profits from interest rate arbitrage and as an alternative funding source.