Securitisation market set for take-off

The securitisation market in the country is at a take-off stage as IRDAI (Insurance Regulatory and Development Authority of India) and PFRDA (Pension Funds Regulatory Development Authority) are expected to facilitate long-term investments by insurance companies and pension funds in securitised papers, a top RBI official said.

Securitisation entails pooling of underlying assets (such as housing loans, commercial vehicle loans, construction equipment loans, tractor loans, personal loans, and consumer durable loans) and packaging and selling them as securitised papers to investors. By selling the securitised papers (or pass-through-certificates), the originator of the loans becomes liquid while the investor earns interest.

Speaking at a securitisation summit organised by the National Institute of Securities Markets, R Gandhi, Deputy Governor, Reserve Bank of India, said, “In my opinion, our securitisation market is revving up for a take-off.”

Trading volumes have been falling in the securitisation market. From a high of ₹63,733 crore in financial year 2008, securitisation volumes have dropped about 45 per cent to ₹28,800 crore in FY2014.

Further, there has been a dip in securitisation of the better-rated assets as well, he said, adding that the share of AAA-rated assets has dipped to 26 per cent in FY14 from 45 per cent in FY12, Gandhi said.

Priority sector lending (PSL) obligations (including loans to agriculture; micro, small and medium enterprises; education, housing, social infrastructure; and renewable energy) for banks will continue to help drive securitisation as a bank can meet shortfall by investing in securitised paper.

However, Gandhi conceded that PSL certificates, which will be eligible for classification under respective categories of priority sector, bought by banks, may dent the growth of securitised market.

Any registered lender who has made loans to eligible categories would get PSL Certificates for the amount of these loans.

Meanwhile, the Securities and Exchange Board of India is examining the possibility of setting up trading and reporting platforms where securitisation transactions can be reported and a central data repository will be available to the securitisation market participants.