After years of drought, securitisation mkt grows 45% in FY16

After three years of tepid growth, the securitisation market grew 45 per cent to around Rs 25,000 crore in 2015-16 over the previous year and is likely to grow further this fiscal with pick-up in commercial vehicles and construction equipment sector.
According to an Icra report, securitisation market grew 45 per cent to around Rs 25,000 crore in 2015-16, a reversal of past three years' trend, primarily due to the increased number and volumes of asset-backed securitisation transactions, which rose by 39 per cent and 51 per cent respectively in the year.
But the report noted that residential mortgage-backed securitisation transactions declined to negligible amounts in the reporting period.

Icra expects the securitisation market activity to be positive in 2016-17, given the renewed interest in securitisation transactions and widening of the investor base with the exemption of income at distribution from distribution tax.
As in the previous year, 2015-16 too, saw the commercial vehicles and construction equipment loans continuing to be the largest asset class accounting for close to half of the total ABS volumes.
Also, the share of microfinance loans rose further from 31 per cent in 2014-15 to 36 per cent from 22 per cent in 2013-14). Tractor loans and car and utility vehicles loans are the other key category that contributed to 12 per cent of the volumes, the report said.

Commenting on the trend, Icra's Kalesh Gada said, "In 2015-16, private sector and foreign banks continued to be the key investors in securitisation, mainly driven by priority sector lending motive. NBFCs, HNIs and private equity firms also invested in some transactions."

Another key trend was the rising acceptability of low rated papers, driven by increased participation by smaller originators and the prospect of higher yield. The share of non-AAA-rated pass through certificates rose from 50 to 60 per cent in 2015-16.
Meanwhile, the volume of the bilateral retail loan pool assignments/direct assignment (DA) transactions, which is a popular model of loan sales, grew 56 per cent to around Rs 42,000 crore in 2015-16, taking total retail loan sell-down volume (including assignment and securitisation) to around Rs 67,000 crore in 2015-16, a growth of 52 per cent from 2014-15.

Public sector banks have been the key acquirers of retail pools under the DA route, as it is a convenient way of achieving balance sheet growth in the wake of poor credit demand also to meet PSL targets.