Securitisation market adapting well to revised norms: CRISIL

India’s securitisation market is adjusting well to the revised securitisation guidelines issued by the Reserve Bank of India (RBI) in May 2012, according to rating agency CRISIL.

After a brief lull following the new guidelines, market activity has resumed, CRISIL said in a statement.

The total market volumes from May to mid-October 2012 were stable at Rs 3,400 crore involving 38 transactions. They were Rs 3,500 crore with 38 transactions for the corresponding period last year, CRISIL noted. The dampener in the guidelines is that credit enhancement in direct assignments is not allowed, leading to a shift to the pass through certificate (PTC) route.

The volumes have remained stable despite two of the revised regulatory norms reducing the availability of assets eligible for securitisation. First, the provision on minimum holding period that requires originators to hold assets longer to increase their seasoning.

Secondly, the assets should conform to a maximum interest rate of 8 per cent above the investing banks’ base rate to receive priority sector status.

Transactions through the PTC route have accounted for over 85 per cent of the total issuances since the guidelines were issued, as against less than 20 per cent in 2011-12. In a PTC, banks and non-banking financial companies can go less than the base rate.

A banker explained that securitisation is done either PTC or bilateral. If it is bilateral, it becomes part of the loan book, while in PTC, its investment for the banks for which they have declare mark to market figures.

“Clarity on the income-tax liability of the trust set up for the PTC route will enhance confidence of investors. In addition, guidelines for resetting of credit enhancement will reduce the overall cost of securitisation for issuers, without necessarily reducing the protection for investors. Finally, active steps to enhance liquidity will attract long-term investors to the market.” said Pawan Agrawal, senior director, Crisil Ratings.