Securitisation mkt boosts to 72% by soaring PSL demand in FY17

Regulatory mandate of meeting the priority sector lending sub-targets helped the securitisation market soar 72 per cent in fiscal 2017, says a report.

The market registered a healthy growth as pass-through certificates (PTCs) issuance soared around 72 per cent to Rs 43,000 crore in the reporting year, ratings agency Icra said in a report on Wednesday.

"The growth was mainly driven by the enormous appetite of banks for priority sector qualifying assets," the report said, adding there was also some increase in the non-PSL asset sales during the reporting year.

It can be noted that under the new PSL norms, banks have to achieve each sub-target for which some may have to depend on securitisations deals. The direct assignment (DA) transaction volumes grew by a modest 12 per cent to around Rs 47,000 crore in fiscal 2017, the report said.

Icra said the note-ban, which impacted cash repayments where micro-lenders are the most active, "severely impacted" securitisation activity in the segment.

"The cash-intensive nature of business of micro finance institutions led to asset quality pressures for this asset class as unavailability of legal tender led to collection efficiencies on the portfolios of most of the MFIs declining immediately after the note-ban," it said.

Even though cash collections showed improvement towards the latter half of the fiscal year, securitisation activity remained subdued in the second half as investors were in a wait-and-watch mode, it said.

The agency said PSL requirements will continue to be driving the securitisation market, it said, adding the jump up in requirements for foreign banks to meet the norms and reporting on a quarterly basis will drive demand.

The surplus liquidity with mutual funds will also drive demand, as the AMCs look for ways of pushing up yields, the report said.

Among other factors, it said changes in the accounting standard, wherein the financial entities have to adopt the new IFRS accounting standards from next fiscal, will also have a bearing on the overall activity, it said.