Securitization market in India is in its infancy with few players. It will help the banks, particularly the public sector banks, to shore-up the capital adequacy, ease the liquidity and widen the asset base. Reason for banks not grabbing the securitization opportunity is abundant liquidity in the system. Securitization will increase the bank's risk taking capacity.
Securitization is a method of converting existing receivables or future cash flows into tradable securities to shore-up the capital adequacy requirements under the regulation or to generate fresh liquidity and undertake expansion activities. Eventhough, the concept of securitization has been in vogue in the global financial markets, in India, it is still resorted to by very few players. It is seen that only very few issuers have resorted to the securitization process and that too mostly non-banking finance companies and a few private sector banks. As per the latest statistical data the major issuers are given in the Table.
It may be seen from the above data, that most of the issuers are NBFCs and very few private sector banks. The securitized papers have the backing of either receivables or mortgages of the immovable properties. Unfortunately, these securitized papers have no secondary market and they are not traded in the exchanges.
Now, the Reserve Bank of India (RBI) has issued draft guidelines on securitization of standard assets to all public sector commercial banks, term lending institutions and NBFCs. Perhaps, RBI will come out with final guidelines on securitization to enable the public sector banks and also private sector banks, which have got very low capital adequacy ratio, to shore-up by resorting to securitization process. |
