India needs to develop its market for securitised assets and allow foreigners and pension funds to invest in the sector if it wants to free up funds to finance its rapid growth, industry experts said on the Thursday.
The push for greater securitisation may seem poorly timed, given the role of securitised products in the global credit market problems flowing from the U.S. subprime mortgage crisis, but India would benefit from a strong market, they said.
Securitisation is not a dirty word. It is a technology which will enable Indian banks and companies to compete with foreign banks on a global scale, Amit Agrawala of Deutsche Bank told reporters at a Euromoney conference on securitisation.
Deutsche Bank put India's securitised products markets at about $8 billion in 2007, eight times larger than in 2003 but substantially lower South Korea's $30 billion. India is Asia's third-largest economy, just ahead of South Korea.
Rising issuances, the global credit market problems and a small pool of buyers had led to falling demand, even though the securitised assets offered interest rates of 25-100 basis points over the underlying asset and were mostly investment grade.
In a securitisation deal, pools of assets such as auto loans, personal and construction loans are pooled together and hived into special investment vehicles which are bought by investors.
The conference was told that that restrictive rules on issuances and participation -- pension funds and foreigners are not allowed to invest in securitised assets -- led to illiquid secondary markets and stifled the sector's development.
Every week we are seeing $100 to $150 million worth of deals falling through due to lack of investor appetite, said Peeyush Pallav, associate director at Fitch Ratings.
The next big challenge for this market is to find more investors, he said.
Pension funds were an obvious potential investor. Devang Gada, associate director of the asset securitisation group at Standard Chartered Bank in India, said ABS issuance could double within 6 months if they were allowed to buy securitised assets.
Ratings agency Fitch said asset-backed securities made up nearly 60-65 percent of the Indian securitisation market. Single loan selldowns -- loan portfolios sold by one bank to another -- accounted for 30 percent, and residential-mortgage backed securities (RMBS) the rest.