Magma Fincorp to securitise 45% of 2010-11 loans

Magma Fincorp, a non-banking finance company (NBFC) funding equipment and small and medium enterprises, plans to securitise an asset portfolio of about Rs 2,500 crore for the current financial year.

This is about 45 per cent of the loans it had made in 2010-11. Earlier in the year, it had done securitisation for about Rs 1,800 crore.

Securitisation helps to provide liquidity and also release the capital set aside for risk-weighted assets, said Magma’s chief financial officer, V Lakshmi Narasimhan.

Securitisation is the process of converting existing assets and/or future cash flows into marketable securities. Typically, loans in segments such as those for vehicles, housing and corporate firms are pooled and packaged into securities. The repayments from borrowers are assigned to investors in securities. Investors may get pass through certificates.

A securitised portfolio is an off-balance sheet item. These loans no longer sit on the books of the NBFC. However, it would still collect the repayments.

The company disbursed loans worth Rs 3,460 crore in April- December 2010. Much of the business was booked in the fourth quarter and total origination (loans) in the current financial year was expected to be about Rs 5,500 crore, the CFO said.

Magma plans to reduce dependence on securitisation over time. It was 75 per cent till 2007-08 and around 50 per cent cent last year. The aim is to bring it below 30 per cent.