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Dinesh Narayanan

MUMBAI, Dec. 17

EMPOWERED by the Securitisation Act, several public sector banks that were reluctant to enter the Rs 15,000-crore asset securitisation market, are preparing to test the waters.

State Bank of India (SBI), the country's largest commercial bank, is in the process of putting in place a policy on securitisation. So is Bank of India (BoI).

A top SBI official told Business Line that an internal committee is working on it. "Until now, certain legal aspects of the product were not very clear. That was the reason we kept away from products such as pass-through certificates (PTCs) and mortgage-backed securities (MBSs),'' he said.

The recently-introduced Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Securitisation Act) has defined such financial instruments as "security receipts''.

Until now the SCR Act was the governing law and it was silent on the instrument.

Bank of India (BoI) will also begin buying PTCs and MBS soon. "We are examining how to go about it. We may not restrict ourselves to investing in the product. We may be on the originating side too. Asset securitisation is also an effective tool for balance sheet management,'' a high level official at BoI said.

Union Bank of India, apart from Bank of Baroda, is perhaps the only bank in the public sector to hop on to the bandwagon packed with private sector banks such as HDFC Bank and UTI Bank, early on.

Union Bank Of India did a deal way back in 1999. While it has done a few more deals since then, the bank has stuck to buying receivables. "We do not want high-risk assets. We do not invest in MBS or car loan pools,'' said an official with the bank.

While not many players are doing corporate loan securitisation, restricting themselves to pooling home loans and auto loans, ICICI Bank has been aggressively selling down, including one-to-one portfolio sales, its assets in the market.

In the current year to date it has done securitisation of about Rs 7,000 crore to Rs 8,000 crore. According to ICICI Bank officials, they are likely to end the year with about Rs 12,000 crore in asset sales, including PTCs.

The bank, the largest in the private sector, has been introducing complex instruments such as collateralised debt obligation in the form of mutual fund units.

However, the multiple-level instrument was not accepted by the market for its complexity. Banks may yet not readily accept such products.

"We will restrict ourselves to plain vanilla type instruments. Complex products are not in the picture, at least in the near future,'' the SBI official said.

According to Mr D. Thyagarajan, Director, Structured Finance Rating at Crisil, banks will have to step into the market sooner or later.

"Otherwise they will miss the bus. Earlier they were apprehensive of the legal aspects. Now that the new law has settled the issue, they may start coming in,'' Mr Thyagarajan said. Crisil has rated asset-backed securities (ABS) and MBS worth more than Rs 5,000 crore in the past three years.

"Securitised paper is very safe. We are yet to see a default in securitised instruments, at least among the rated ones. Besides, they offer a better yield,'' he said. ABS fetch about 40-50 basis points more than the top-rated corporate paper.

With the public sector biggies taking the plunge, the securitisation market will deepen in the coming days.

Some of them are thinking of entering the market on the originating side too as it helps manage capital costs and adequacy.

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