Securitisation volumes grow 3 times in FY08

2007-0837000 2006-0717000 2005-0615,000 2004-0524,000 Source: Crisil  Securitisation involves pooling and repackaging of cash-flow-producing financial assets into securities that are then sold to investors. For example, car or home loans are pooled along with the repayment stream (cash flow) into securities.  Asset-backed securities (ABS) such as commercial vehicle, car, two-wheeler and personal loans; single-loan assets; and mortgage-backed (home loan) securities (MBS) are the three segments that dominated the securitisation market.  Prasad Koparkar, head (structured finance rating), Crisil, said the ABS segment accounted for close to about Rs 37,000 crore in 2007-08, making up over 50 per cent of the total securitisation volume. ICICI Bank, Tata Motors (vehicle finance) and Cholamandalam Finance were active in securitising auto and personal loans.  Explaining the sharp rise in the securitisation activity, a senior executive of a large private bank said the banking sector had seen about 30 per cent year-on-year growth in non-food credit between 2004-2007. While it grew the balance sheet size, it also built pressure with regard to higher prospects of an asset-liability mismatch.  Hence, some banks are shedding assets in a particular sector to reduce exposure and avoid extra risks. Some banks have securitised a part of their home loan portfolio or commercial vehicle loan pool and preferred to go slow in the altered environment (read a slowdown in credit pick-up and a rise in the incidence of defaults).  Changes in regulatory norms for securitisation have also affected the activity. The market dipped sharply in 2005-06 after the Reserve Bank of India (RBI) tightened norms for booking profits and raised the capital charge for the securitised paper. Banks and NBFCs have now accepted stringent norms and are back with large-size deals.  After the ABS category, single-loan assets are the next largest segment of securitisation. New-generation private banks such as Yes Bank, Axis Bank and Kotak Mahindra Bank are the leaders in this category.  "Some look at it (securitisation) as a profit centre. A bank disburses loans and immediately sells it through securitisation to investors like debt mutual funds. It is a highly competitive market and spreads (margins) are thin," said Koparkar.  The MBS market was quite negligible at Rs 1,500-2,000 crore in 2007-08 compared with Rs 1,000 crore in the previous year.