After a disappointing run during the past few years, the Indian securitization market is all sent to pounce back. As per a market report, the securitization market reported an all-time high of Rs. 45,000 crore in the first six months of 2016-17 and it is expected to report a record high of Rs 1 lakh crore by the end of year.
Until the budget 2016, the securitization market continued to remain sluggish owing the issues with respect to distribution tax on the hands of the SPVs in case of securitisation transactions, This kept the investors disinterested in securitisation transactions, especially those under PTC model. All these years, it is only the Direct Assignment transactions, that too in the priority sector lending space, that the kept the volumes ticking.
However, after the budget 2016, which addressed the problems with respect to securitisation distribution tax, there has been a significant change in the market, for instance, there has been sharper focus of both public and private sector banks on growing their retail books, the incremental priority-sector lending targets set for foreign banks and the investor’s base has also grown. The increase in pass-through certificate (PTC) transactions has been commendable. The volume of PTC transactions has increased to Rs 22,500 crore for the first half as compared to Rs. 7,500 crore in the first quarter.
Vehicle loans being the dominant player in the securitisation market comprises 52% of the demand for PTC deals, thereafter, microfinance which comprises 26% and then housing loans and loans against property which comprises 12%. The remaining portion constituted with asset classes like construction equipment, micro, small and medium enterprises (MSME) loans and tractor loans.
Mutual Funds and bank treasuries returned to the market in the second quarter with investments in non priority sectors like PTCs backed by car and commercial vehicle loans. Also, there were a few bank treasuries who have invested in these PTCs with the intention of selling it in future following a lower interest rate environment. There has been entry of large institutional investors with long-term fund options which implies a great development for securitisation market in India.
Further, there is also a feel that the market will grow at a higher rate during the second half of this current fiscal, especially, due to the fact that the RBI has now allowed the FPIs to make investments in securitized debt instruments, which were earlier, barred. This gives us a feel that the heydays of the Indian securitization market are back.