Securitisation market volume rises in FY 2016: Care Ratings

MUMBAI: Securitisation market volume increased 47% to Rs 63,052 crore in the fiscal year ended March 2016 driven by investor interest in microfinance assets and a revival in appetite for vehicle and construction equipment transactions.

In a report released on Tuesday rating agency Care said loans from micro finance companies that qualify under the agriculture or weaker sections category has emerged as a preferred asset class for banks to meet their priority sector lending targets, leading to high demand for securities from these categories.

Banks have to lend 40% of their loans to the so-called priority sector which includes loans to agriculture and allied activities, to small entrepreneurs and also to weaker sections of society like village artisans, people from scheduled castes and scheduled tribes and minority communities.

Banks have to fulfil their priority sector targets every year. However if they do not achieve their target they can buy priority sector lending Certificates (PSLCs) under which the seller (likely a microfinance company) sells fulfilment of priority sector obligation and the buyer buys the obligation with no transfer of risk or loan assets.
In the fiscal year ended March 2016, volumes of certificates issued by micro finance companies increased by 67% much higher than the 20% growth seen in the fiscal year ended March 2015.

“As MFI loans qualify under ‘agriculture’ and ‘weaker sections’ categories of PSL, it has emerged as preferred asset class for bankers to meet their PSL targets. Further, MFIs have demonstrated superior performance in asset quality. The share of MF loan portfolio in aggregate securitization volume jumped from 32.5% in FY15 to 40% in FY16,” Care said.

However, last year eight micro finance companies were given an in principle approval to become small finance banks. A decline in securitisation by these new banks would result in slower issuance of these securities in the current fiscal year compared to last year, Care said.

“These eight MFIs accounted for 45% of the total microfinance industry loan portfolio as on Dec’15. Out of these eight microfinance entities, six microfinance entities have sold a portfolio worth of Rs 4,162 crore in FY16 representing 46% of total MFI PTC volume,” Care said.