The Hindu Business Line : Act to be amended for creating market for securitised debt

IN a bid to create a vibrant secondary market for securitised loans, the Union Cabinet on Thursday gave its approval to amend the Securities Contract (Regulation) Act (SCRA), 1956, to provide for a definition of "securitised debt" under the definition of "securities". The Bill would be introduced in the forthcoming winter session of Parliament.

The amendment would bring about a legal framework for the trading of securitised debt and help in creating a market for securitised debt instruments, including mortgage-backed securities (MBS).

"The securitised debt market has grown substantially and it is therefore necessary to define it and provide trading in securitised debt," the Finance Minister, Mr P. Chidambaram, told reporters after the Cabinet meeting.

Mr Chidambaram had announced the intention to move a Bill for this purpose in his Union Budget speech earlier this year. He had said that this would help in providing a fillip to the debt market that he felt was lagging behind the equities market.

Currently, receivables such as housing loans and car loans are securitised and sold to investors, who lack a formal mechanism of a trading exchange to offload the same. However, once a secondary market is created for offloading such securitised debt, it would add to the liquidity and would make the instrument more attractive to prospective investors.

The inclusion of `securitised debt' as part of `securities' under the SCRA has been one of the major demands of the National Housing Bank (NHB). The NHB too had felt that the move would help in creating a large market for residential MBS.

The NHB, that packages a huge amount of housing loans in securitised debt, had in fact said that such an amendment would create a large secondary market for MBS. It had said that this would also encourage insurance and pension funds to invest in MBS, since they are constantly on the look out for long-term investments.

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