30 April, 2011:
As per a recent ICRA report, the issuance volumes in the Indian Securitisation Market have declined by 29% during the financial year 2010-11 and in terms of numbers; transactions were almost 20% lower than the previous fiscal.
The market continues to be dominated by direct assignment. Though ABS continued to be major asset class and commercial vehicles being the dominate asset class contributing to about 70% of the total ABS volumes, RMBS volumes remained low as the lack of secondary market liquidity, term of issuance acted as deterrents in the growth in volumes. The drop in volumes was largely attributable to the drying out of single corporate loan securitisation or loan sell-offs (LSOs), that had formed the largest product class in FY 2009.
Regulatory factors like "priority sector lending" (PSL) targets for banks-and the resultant acquisition of such loan pools from non-banking finance companies (NBFCs)-continued to be the key motivator for ABS and RMBS transactions. Microfinance loan securitisation saw a surge in the second half of FY2011 as MFIs found it difficult to obtain alternate source of funding and investors (mainly banks) took exposure in these transactions mainly driven by the motive of fulfilling their PSL targets.
Securitisation market in India has remained confined to few market participants and has been on salvaged by the regulatory factors like priority sector lending requirements for banks by way of purchasing the loan pools from NBFCs or providing funding to the microfinance institutions, but the constant regulatory changes have left a backdrop of uncertainty regarding the future outlook of the industry.
ICRA Rating Feature, April, 2011, http://www.icra.in/Files/Articles/Indian_Securitisation_Mkt.pdf
[Reported by: Nidhi Bothra]