Regulatory changes to spur securitisation: Moody's

Moody's on Monday said three reforms, including the Bankruptcy Code and the tax that increased post-tax returns, would spur activity in the structured finance (securitisation) space in India.

"The changes will improve returns to investors, promote foreign investment, and improve the resolution process in the event of default, thereby strengthening creditor rights," said Vincent Tordo, an analyst with Moody's.

The new tax regime would lift post-tax investment returns from securitisation trusts.

Also, changes in rules for foreign portfolio investors (FPIs) will encourage foreign investment. A new bankruptcy code will reinforce creditors' rights.

These three would help to further develop India's structured finance market, and allow securitisation to play a bigger role as a source of funding in the economy, an objective promoted by the government.

The new tax rule will increase post-tax returns from investments in pass-through certificates (PTCs), whose issuance volumes have fallen due to lower demand from bank investors put off by current lower returns.

The participation of foreign investors through the new FPI rules would help the Indian market evolve so that it became more in line with global practices, Moody's said.

Revised rules will encourage to evolve away from structures with single tranches and single investors into those with multiple tranches and multiple investors.

The bankruptcy code, once implemented, would over time strengthen the legal framework of India's credit markets by significantly increasing the bargaining power of creditors against debtors in the resolution of distressed assets.