The Hindu Business Line : ‘Securitisation market has good growth potential’

Enough room for all
The current penetration is hardly 5 per cent of retail assets.
Mortgage-backed securities yet to pick up.
Secondary market almost non-existent.

Priya Nair

Mumbai, Oct. 4 The securitisation market in India has tremendous scope for growth, given the current low level of penetration and the need to free up capital under Basel II. Experts estimate the current penetration to be between 2 per cent and 5 per cent of the total retail assets.

According to Mr D. Thyagarajan, Director, Structured Finance Ratings, Crisil, securitisation issuances including corporate single loan sell-downs during 2006-07 were Rs 22,000 crore and in 2007-08, are expected to be around Rs 35,000- Rs 40,000 crore.

Mortgage-based securities issued last year was about Rs 800 crore and this year, so far it is about Rs 2,000 crore. He also said that securitisation issuances formed 20 per cent of corporate bond issuance in 2006-07.

Mr Rajat Surey, Director, Asset Securitisation Group, Standard Chartered Bank, said, "Mortgage-backed securities market has not picked up, given that long-term funding is an issue for Indian investors. However, there is scope for high growth in MBS. Long-term investors such as pension funds and insurance companies, which have not yet taken to investing in securitised papers in a big way, are like to play an increasing role in future."

Mr Rajesh Mokashi, Executive Director, Care Ratings, also agreed that there is enormous potential for growth.

“Basel II would need to free up capital, and securitisation can play an important role in freeing up capital and help capital adequacy,” he said.

Risk weightage

Under Basel II, the capital requirement is likely to increase in the case of unsecured assets such as credit card loans and personal loans and fall for secured assets.

Mr Thyagarajan pointed out, “The risk weight on assets such as auto loans, personal loans and credit card loans, if held on books, would be 125 per cent and, therefore, there

While private banks and foreign banks are more active in this market, public sector banks are taking a more cautious approach. A senior official from State Bank of India said the bank was active only in the initial years, but is more careful now. “There is no match between the the expectations of buyers and sellers with regard to pricing,” he said.

For instance, in 2006-07, SBI sold NPAs worth Rs 46 crore to asset reconstruction companies and Rs 45.8 crore worth NPAs in outright sale. As against this in 2005-06, it had sold Rs 893 worth NPAs to asset reconstruction companies and Rs 1,140 crore worth NPAs in outright sale.

Secondary market

As far as the secondary market for securitisation is considered, it is still in its infancy or virtually nil. The estimated trade is about Rs 200-300 crore per month, said Mr Thyagarajan. “The potential for growth in volumes is high. The Securities and Exchange Board of India has also issued draft guidelines for listing of Pass Through Certificates. This is also expected to increase trades,” he added.

Trading information is also a challenge to the development of the secondary market, said Mr Surey.

More Stories on : Securitisation | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page