SSI loan securitisation gets priority sector tag

MID-TERM REVIEW OF ANNUAL POLICY 2004-05/ FINE-TUNING CREDIT DELIVERY

In order to encourage the securitisation of loans to the small-scale industry (SSI), the Reserve Bank of India (RBI) today announced that investments made by banks in such securitised assets will be treated as direct lending to the SSI sector within the priority sector lending.

This is provided the pooled assets represent loans to SSI sector which are reckoned under priority sector by the RBI and the securitised loans are originated by banks or financial institutions, the RBI's mid-term review of annual policy statement clarified.

The securitised assets market in India is dominated by securities backed by mortgage assets and vehicle finance. Often, towards the close of the financial year, private sector banks buy out priority sector portfolios of large public sector banks to bridge the gap in fulfilling their priority sector targets.

With the central bank's latest liberalisation move, banks can now opt to securitise the requisite assets from other banks.

In a related move, the RBI has enhanced the limit on composite loans (including term loans and working capital finance) from Rs 50 lakh to Rs 1 crore. Hitherto, banks extended composite loans to SSIs through a 'single window' system for fixed assets and working capital requirements up to a limit of Rs 50 lakh.

The ceiling for rural housing loans has also been raised. Banks, can now with the approval of their respective boards, extend direct finance to the housing sector up to Rs 15 lakh, irrespective of location, as part of their priority sector lending.

Till now, banks' direct finance for housing up to Rs 10 lakh in rural and semi-urban areas was treated as priority sector lending. This move it expected to improve flow of credit to the housing sector.