New Priority sector lending rules to hit securitization in FY16: ICRA

The pace of securitisation might be adversely affected in 2015-16 by the new priority sector lending (PSL) rules, according to ICRA. Banks would find it easier to meet PSL targets on their own.

Certain loan categories such as medium enterprises, social infrastructure and renewable energy, qualify as PSL, according to the new rules. The distinction between direct and indirect agriculture loans has been removed. Funds parked in Rural Infrastructure Development Fund deposits, with National Bank for Agriculture and Rural Development, continue to qualify for PSL benefit. These measures are expected to further reduce the appetite for PSL assets through the securitisation route, especially for domestic banks, ICRA said in its report.

Securitisation involves pooling debt/loans, such as home mortgages, automobile loans or credit card debt obligations, and selling these to third-party investors as securities (bonds or pass-through securities).

Meanwhile, issuance volume of rated transactions in the Indian securitisation market declined 40 per cent over the previous financial year to Rs 17,200 crore in FY15. The volume of securitisation of asset-backed securitisation declined 30 per cent while residential mortgage-backed securitisation issuance shrunk 80 per cent compared to the previous year.

On the other hand, the volume of the bilateral retail loan pool assignments/direct assignment transactions grew 33 per cent to Rs 27,000 crore in FY15. Thus, the combined value  of retail loans assigned/securitised in FY15 was around Rs 44,000 crore (10 per cent decline from FY14).

The appetite of foreign banks (for meeting their PSL requirements) for securitised paper might increase in a phased manner, buffering the impact on securitisation volumes to a certain extent.