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Securitization of Home Loan Falls
Banks are running short of sources to raise funds. Securitization of home loan portfolio has witnessed a sharp fall and dropped to a third of previous years’ level, says the data showcased by rating agency Icra.
In 2006, securitization was estimated to stand at Rs 5,000 crore whereas it is Rs 1,600 crore in 2007.
The overall value of securitisation soars to Rs 37,000 crore (i.e. by 44%), largely due to bilateral deals among banks. The spectrum included auto, corporate, autos, and home loans. The securitisation of home loan portfolio is better known as Residential Mortgage Backed Securitisation (RMBS).
Stringent liquidity conditions and increasing interest rates have come forward as the factors contributing to slowdown in the securitisation, says the report compiled by Icra.
The RBI directives regarding securitisation specified that selling bank, also called as originating banks, should assign capital on the securitized loans. This discouraged the originating banks to offload loans through securitization.
However, the securitization of corporate loans (loan sell offs, LSOs) has grown from mere Rs 1,200 crore to Rs 11,700 crore in the corresponding period in 2006. Consequently, the share of LSOs in the total securitisation activity reached to 32% – much higher than the 8% share as estimated in the last two years.
Icra expects the ABS market to grow in 2007; given the capital constraints that bank may face in the ongoing phase of loan growth, says Icra. Securitisation would serve as a critical funding tool especially for originators who find it hard to access the conventional debt market, adds the report.
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