Securitisation can provide funds for housing, infra: Moody's

India's securitisation market can provide funds needed for financing infrastructure, housing and urbanisation projects as the country's economy grows, rating agency Moody's Investors Service has said.

Since coming to power last year, the new government at Centre has set a goal of lifting economic growth through polices to stimulate the construction of housing, infrastructure and other urbanisation initiatives.

Securitisation is a process of creating a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.

Georgina Lee, a Moody's Assistant Vice President at Moody's said, "While the government has injected its own capital to support various reform initiatives, securitisation could play a significant role by providing funds to finance development projects".

Securitisation can provide funds for real estate developers, project sponsors and retail loan providers, alleviating pressure on public finances and the banking system, he said.

Moody's released report "Securitisations Provide Long-Term Funding Option for India".

Indian securitisation market is dominated by three main asset classes: auto loan asset-backed securities (ABS), residential mortgage-backed securities (RMBS) and micro loan ABS. India's commercial mortgage-backed securities market is also emerging with three deals concluded in 2014.

While securitisation volumes in India rose by 29 per cent to Rs 49,000 crore in the fiscal year ended 31 March 2014, issuance levels have been volatile in recent years, Moody's said.

The volatility is more outcome of regulatory and taxation considerations, which in turn have shaped the extent to which originators and investors have been motivated to tap into the securitisation market.

The emergence of a broader set of investors is important for the development of securitization market and the market's ability to help fund the economy. The existence of a diverse range of investor types is key to a deeper, more liquid market and better price discovery.

Referring to performance of asset classes, Moody's said delinquencies for commercial vehicle loan ABS are relatively higher for more recent vintages, owing to a stressed operating environment for transport operators.

Residential Mortgage Backed Securities (RMBS) pools have performed strongly, displaying high collection efficiency ratios and low delinquencies. Micro-loan ABS performance has been robust, with the majority of transactions exhibiting a zero delinquency rate, it added.