MFIs step up securitisation deals

Pressed to meet priority sector lending target, banks have stepped-up securitisaton deals, with the non-Andhra Pradesh portfolio boosting the demand.

Andhra Pradesh-based SKS, which recently raised Rs 243 crore through securitisation deal, is planning to sell another loans worth Rs 500 crore to banks by the end of this financial year. West Bengal-based Bandhan, a close competitor of SKS, too is looking to sell loans worth Rs 500 crore to banks before the end this fiscal, confirmed Chandra Shekhar Ghosh, chairman and managing director, Bandhan.

Interestingly, while a year ago MFIs were scouting for bank funds in wake of repayment crisis in Andhra Pradesh, this time around banks are scrambling to buy non-Andhra Pradesh portfolio of micro lenders.

Securitisation is the process of converting existing assets, or future cash flows, into marketable securities.

“We would go for securitisation deal worth Rs 500 crore by the end of this year. The rates are better this year, and banks are willing to buy MFI portfolio,” said Dilli Raj, chief finance officer, SKS Microfinance.

MFIs are able to get a better deal this year, with interest rates at least 100 basis points less than the regular bank funding.

“This year meeting priority sector lending target would be a challenge. We are trying to buy some pool of assets from NBFC, as direct lending is no longer falls under priority sector lending,” said Bhaskar Sen, Chairman and Managing Director, United Bank of India.

It was expected that by the end of this financial year MFIs would sell between Rs 500-1,000 crore of loans through securitisation deals, said Shashi Shrivastava, Senior Vice-President, Grameen Capital.

The reason why banks are chasing a few MFIs for securitisation deal is the recent Reserve Bank of India (RBI) directive narrowing the scope of priority sector lending norms governing banks. RBI recently disallowed banks from classifying loans given to non banking finance companies (NBFCs), other then MFIs, as priority sector lending. As per the RBI norms, banks are required to lend 40 per cent of their adjusted net credit to the priority sector. Direct agriculture loans should constitute 18 per cent of priority sector loans for Indian banks.

“Come March, banks would require to meet priority sector lending target. Many would prefer to but MFI loans for meeting the direct agriculture lending target,” said Abhijit Ray, co-fouder, Unitus Capital.

This year the market for non-Andhra Pradesh portfolio has shrunk to about Rs 7000 crore, with the total size of the MFI industry expected to be around Rs 15,000 crore. The Andhra Pradesh MFI portfolio itself has shrunk to 50 per cent, from 70 per cent prior to the crisis.

Recently, RBI had also tweaked securitisation guidelines by MFIs, with the minimum holding period of the loan before securitisation to be six months from the due date of the first installment.

The overall issuance volume in the Indian securitisation market fell by 29 per cent in 2010-11. over the

previous fiscal to Rs 30,825 crore, according to a report by rating agency Icra.