The Hindu Business Line : 'Securitisation viable tool for SMEs'

SECURITISATION is a viable funding method for small finance companies because their advances generally match banks' requirements towards priority sector lending, said Mr N. Sampath Kumar, Executive Director (Finance), Ashok Leyland Finance, here today.

At a meeting organised by the South India Hire Purchase Association on the possibilities of small finance companies using securitisation, Mr Sampath Kumar was optimistic about its potential.

Securitisation's (pooling of assets, already financed, for re-sale) potential rests on the fact that most finance companies lend to small transport operators and agriculturists, areas that banks are mandated to lend to meet priority sector commitments.

He said securitisation provided better liquidity to companies when compared to using assets as a collateral for a loan. On the whole, securitisation was a low cost funding method, he added. The low default rate in securitisation - less than 0.2 per cent - in relation to a typical debt instrument was another reason for Mr Sampath Kumar's optimism. "Down the line, all banks will take it as an investment product," he said.

Mr Sampath Kumar said small companies could try rated or unrated bilateral securitisation deals. Among the important costs companies dealt with were the discount rate on the deal and the cost of cash collateral.