Securitisation volumes seen falling

Rating agency Fitch Ratings today said 2006 would see securitisation volumes decline as the market restructures and adapts to the new set of guidelines issued by the Reserve Bank of India (RBI) in February 2006.

In a special report titled "Securitisation in India", Fitch said the securitisation market in India grew significantly from 2002 to 2004, before growth tapered off in 2005. Year 2005 saw the market adjust to the central bank's draft guidelines, while new asset classes, originators and investors also entered the market.

The agency acknowledges that while the Indian market was still young, it is maturing rapidly through innovation, increasing sophistication and new issuances. Fitch said some asset classes now common elsewhere have yet to be offered in India including synthetic securitisations.

A better developed regulatory environment, uniformity of stamp duties and public sector bank participation would provide the needed impetus to the market and put it on a stronger growth trajectory.

Fitch anticipates that the Reserve Bank of India's guidelines on securitisation would result in a slowdown in fresh issuances this year.

The market is expected to restructure before picking up in the later half of 2006.

However, issuance volumes may remain similar or lower than those observed in 2005 as issuers with higher credit enhancements or lower capital adequacy would be less willing to enter the market until there is more investor appetite for subordinate bonds.

The new guidelines have also paved the way for mezzanine investors to look at securitisation in India, which could be a healthy development in the long term.