Moody's: Securitizations can help address India's long-term funding needs

Moody's Investors Service says that India's securitization market can provide funds needed to finance housing, infrastructure and urbanization projects as the country's economy grows.

Since coming to power last year, the new Indian government of Prime Minister Narendra Modi has set a goal of lifting economic growth, including through polices to stimulate the construction of housing, infrastructure and other urbanization initiatives.

"While the government has injected its own capital to support various reform initiatives, securitization could play a significant role by providing funds to finance development projects," says Georgina Lee, a Moody's Assistant Vice President.

"Securitization can provide funds for real estate developers, project sponsors and retail loan providers, alleviating pressure on public finances and the banking system," adds Lee.

Moody's report points out that while securitization volumes in India increased by 29% year-on-year to INR490 billion in the fiscal year ended 31 March 2014, issuance levels have been volatile in recent years.

Moody's attributes the volatility to regulatory and taxation considerations, which in turn have shaped the extent to which originators and investors have been motivated to tap into the securitization market.

Moody's report also says that the emergence of a broader set of investors in India will be important for the development of the country's securitization market and the market's ability to help fund the economy, because the existence of a diverse range of investor types is key to a deeper, more liquid market and better price discovery.

Moody's report explains that the Indian securitization market is dominated by three main asset classes: auto loan asset backed securities (ABS), residential mortgage backed securities (RMBS) and micro loan ABS.

India's commercial mortgage backed securities market is also emerging, with three deals concluded in 2014.

In terms of the performance of the various asset classes, Moody's analysis shows that:

Delinquencies for commercial vehicle loan ABS -- the key auto loan ABS segment in India -- are relatively higher for more recent vintages, owing to a stressed operating environment for transport operators;

RMBS pools have performed strongly, displaying high collection efficiency ratios and low delinquencies. However, RMBS loans from certain regions exhibit higher delinquency rates than others; and

Micro-loan ABS performance has been robust, with the majority of transactions exhibiting a zero delinquency rate.

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