Home / Market / Stock-market-news /  RBI norms to hit loan securitization market: Icra

Mumbai: The Reserve Bank of India’s (RBI) new priority sector norms released last month will lead to slowing down of the already depressed securitization market in India, credit rating agency ICRA Ltd said on Wednesday.

According to the agency’s estimates, India’s securitization volume dipped 40% to 17,200 crore in fiscal 2015, from 28,800 crore the previous fiscal. The 2014 figure was way lower than the 37,876 crore notched up in the year ended March 2012.

Securitization is the process of pooling loans and turning them into marketable securities that can be sold to investors.

“Going forward, ICRA expects the securitization market to be impacted adversely on account of the recent revision (April 2015) in priority sector lending (PSL) guidelines, as banks may find it easier to meet PSL targets on their own," said Kalpesh Gada, head-structured finance, ICRA.

Indian banks have to lend 40% of their net bank credit to borrowers in sectors such as agriculture and to small enterprises. Under the revised norms, RBI expanded the scope of PSL to include medium-sized enterprises, social infrastructure and renewable energy and also did away with the distinction between direct and indirect lending to agriculture.

The easier guidelines will give banks more room to fulfil their obligations. This will mean banks, especially those in the private sector, that used to queue up to buy securities to fulfil their priority sector obligations may not need to do so.

However, the revised norms also said foreign banks with less than 20 branches would have to achieve 40% PSL like all other banks in a phased manner till fiscal 2020, up from 32% so far. ICRA said the appetite for securities from foreign banks could soften the impact of a lower demand for these papers from domestic banks.

The bulk of the loans securitized in India are those given for commercial vehicle and construction equipment purchases, which originate in the NBFC (non-banking finance company) sector. Loans of under 50,000 to individual borrowers are usually pooled for securitization puposes.

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