Volume of securitisation deals more than doubled to Rs 22,000 crore in the third quarter after the government clarified that such deals would not attract Goods and Services Tax, helping the market find its feet once again.
The volume was just about Rs 10,000 crore in the third quarter last year, when business and financial deals were hit by demonetisation.
Rating company CrisilBSE 0.19 % said that the volume shrank 20% in the first half because of uncertainty over the applicability of GST on securitisation deals but banks returned to this market once clarity emerged in the third quarter, helping securitisation volume rise 7% to Rs 59,000 crore in the first nine months of this fiscal.
“The strong growth was driven by demand for non-priority sector lending assets and low-base effect of the third quarter of last fiscal, which was affected by demonetisation,” the rating company said.
Securitisation is a way of pooling loan receivables and selling their related cash flows to third party investors as securities. This frees up capital for the originator of loans.
Banks’ quest for retail credit growth, demand from mutual funds, and yield hunt by non-bank treasuries cranked up demand for non-PSL assets. For large originators, non-priority sector asset-backed pass-through certificates (PTCs) fetched coupons in the range of 7.5% to 8%, which is 100-150 basis points more than for PSL asset-backed instruments.
“With participation by mutual funds and non-bank treasuries increasing, newer asset classes and multi-tranche structures are making their presence felt,” said Krishnan Sitaraman, senior director at Crisil Ratings.
Deals involving non-priority sector loans now contribute to around 45% of overall market volume, rose from about 25% in earlier years. Mortgage receivables (home loans of higher ticket sizes that do not qualify as PSL) remained the most preferred asset class in this market.
Securitisation for priority sector loans, which has traditionally accounted for around 75% of the volume, shrunk since banks nowadays exercise the option to trade priority sector lending certificates to meet priority sector lending targets.
Traded volume in PSLCs sizzled between April and December 2017, rising to Rs 126,000 crore compared with Rs 49,500 crore for the whole of last fiscal.