Credit rating agency CRISIL has noted an increase in demand for non-priority sector lending assets, especially from public sector banks (PSBs), in 2015-16.

The rating agency said in a report that such loans contributed to an estimated 25 per cent of the securitised assets. PSB investments in direct assignment (DA) or direct sale transactions have been increasing for the past few years. “With lending to corporates slowing last fiscal because of rising non-performing assets – and banks sharpening focus on growing their retail business – there was increased interest in DA as it expanded their loan book. So much so, DAs accounted for 65 per cent of the overall volume”, CRISIL said.

PSL eligibility

In case of demand for priority sector lending (PSL) securitised assets, it saw a trend reversal in fiscal 2016 from the previous fiscal with an estimated 75 per cent of the securitisation volume comprised assets that had PSL eligibility.  In fiscal 2015, volume was impacted due to the benefit from a one-time adjustment in accounting for Rural Infrastructure Development Fund (RIDF) investments.

In 2015-16, the Indian securitisation market volume galloped around 60 per cent to touch Rs 70,000 crore – only the second time since the turn of the century. The first time was in fiscal 2008, when volume was Rs 71,400 crore.

“Increase in overall volume, was partly attributable to the revised PSL guidelines, released by the Reserve Bank of India (RBI), in July 2015”, it pointed out. RBI revised loan limits for housing, and microfinance loans, qualifying for PSL.

Micro enterprises

RBI introduced sub-targets for lending to ‘micro enterprises’. The sub-target was set at 7 per cent for fiscal 2016 and 7.5 per cent from fiscal 2017 onwards. The central bank also introduced introduction of sub-target for lending to ‘small and marginal farmer’ category. This sub-target was set at 7 per cent for fiscal 2016 and 8 per cent from fiscal 2017 onwards.

Of the total PSL assets securitised in fiscal 2016, 48 per cent were through the pass through certificate (PTC) route and the rest via direct assignment. This fiscal increase in PSL target to 34 per cent from 32 per cent for foreign banks (with less than 20 branches) has to be met from sectors other than export credit.

CRISIL expected PSB appetite to grow loan book through direct assignments. It also hoped that clarity on distribution tax should persuade mutual funds back to PTCs. “Additionally, permitting foreign portfolio investors (FPIs) into securitised debt instruments will help expand investor base – especially for PTCs in the microfinance, affordable housing and small business loans space – because of attractive yields”, it said.

The rating agency felt that supply of securities assets is to go up because of the securitisation plans of microfinance institutions (MFIs) that have got licence to set up small finance banks (SFBs). The introduction of the priority sector lending certificate (PSLC), because it substitutes the PSL mandate, would also aid rise in supply of securitised assets.

“However, PSLCs may have a negative impact on volume if banks resort to them to meet their PSL targets. Given the low quantum of surplus PSL assets currently available in the banking system, PSLCs are expected to have a low impact on securitisation volume in the immediate-to-near term”, CRISI maintained.

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