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Securitisation volumes set to rise this year: Crisil

The early signs are encouraging as the first quarter has seen a volumes of Rs 17,000 crore already, following an eight year high of Rs 70,000 crore achieved last year.

, ET Bureau|
Updated: Sep 28, 2016, 05.03 PM IST
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The fact that banks have moved to a quarterly assessment of priority sector lending targets starting this fiscal has meant there are more securities in the market.
The fact that banks have moved to a quarterly assessment of priority sector lending targets starting this fiscal has meant there are more securities in the market.
 
MUMBAI: Securitisation volumes are set to rise this year as long term investors like insurance and pension funds are likely to buy mortgage backed securities after the government did away with distribution tax, rating agency Crisil said.

The early signs are encouraging as the first quarter has seen a volumes of Rs 17,000 crore already, following an eight year high of Rs 70,000 crore achieved last year.

Earlier in February the government did away with distribution tax on securitisation transactions, which was introduced through the Finance Act of 2013, removing an hindrance for institutional investors which invest in these instruments.

Also, the fact that banks have moved to a quarterly assessment of priority sector lending targets starting this fiscal has meant there are more securities in the market.

Out of the total securitisation volume Rs 17,000 crore in the first quarter, mortgage-backed securitisation (MBS), including residential loans and loans against property (LAP), accounted for more than half of overall market volume, Crisil said.

It is these certificates which will attract large long term investors because of their longer tenures and lower delinquencies. “MBS is deemed as an ‘approved investment’ as per the Insurance Regulatory Development Authority investment regulations. Likewise, the Employees Provident Fund Organisation (EPFO) permits investment in PTCs. Insurers started investing in MBS PTCs in fiscal 2013, pouring in almost Rs 2,000 crore. But the lack of clarity on distribution tax brought an end to the practice,” Crisil said.

However, this year the interest is likely to revive. “The stage is now set for a return of insurance companies as investors in MBS pass through certificates. Potentially, pension funds could follow suit given the tax clarity and the fact that such investments are aligned to their asset-liability management and investment objectives. The investment assets of insurance companies, EPFO and the National Pension System in corporate bonds are estimated at over Rs 6.2 lakh crore. Even a small percentage of this invested in securitised debt instruments would provide a huge fillip to PTC volumes going forward.” said Ajit Velonie, director, Crisil Ratings.
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