Easier securitisation norms likely to ensure core funds

NEW DELHI: Budget ���07 may provide a leg up to infrastructure financing by securitisation, where future cash receivables are converted into tradable debt instruments. The government may consider easing guidelines for securitisation to enhance liquidity for the sector.

Securitisation helps banks reduce instances of funds being blocked in a few projects. This frees up money that can be used for funding infrastructure projects.

���The government is looking to remove policy blocks in the way of infrastructure financing. It may also look at revisiting the guidelines for securitisation,��� a government official said.

For infrastructure projects to be financed through securitisation, changes will have to be made to the way future flows are recognised under RBI guidelines. Current norms cannot be applied to infra-structure because banks find lending to long-term projects illiquid. As per current norms, only existing streams of cash flows can be securitised, which arise from a ���true sale��� or when receivables are assigned.

Securitisation is a process where loan assets from an originator bank are pooled into a special purpose vehicle (SPV) into securities that can be sold to investors. Securitisation benefits banks by providing liquidity to loan portfolios and mitigating credit risk by removing assets off banks��� books.

Bankers feel there is also a disincentive to securitising assets since the originator has to amortise the gains from the sale over the asset maturity but book all expenses in relation to the asset sale upfront.

It is difficult to finance large projects through securitisation because the financial transactions are long-term. Mutual funds, typically, would not have the appetite for long tenor assets going up to 15 years. Besides, capital provisioning norms for credit enhancement are the other challenges faced by originator banks.

Standard Chartered Bank MD and head (project finance, South Asia) Abhay Rangnekar said, ���Securitised instruments need to be rated under current guidelines and considering that most projects in India will be at the lower end of investment grade, the appetite for securitised project finance instruments is low.���

Since these instruments are usually not rated, investors do not want to buy them.The government hopes to table the Bill amending the Securities Contract Regulation Act in the Budget session. The Bill will give greater clarity to asset-backed securities (ABS).