The Hindu Business Line : Asset-backed securitisation set to grow on loans to used vehicles

Used vehicles, two-wheelers included, present a fairly big market, and the past year in particular witnessed a rise in lending aimed at such cars and motorcycles.

Kolkata , Aug. 15

A comparatively new class of assets - loans to finance second-hand vehicles - is set to change the securitisation scenario in India.

Asset-backed securitisation (ABS), which has already recorded a tremendous rise in recent times, will see further growth, thanks to the used-car culture that is firmly getting established across the country.

Used vehicles, two-wheelers included, present a fairly big market, and the past year in particular witnessed a rise in lending aimed at such cars and motorcycles, observe sources in the financial services industry.

"This is definitely a new phenomenon," said Mr M. Anandan, MD, Cholamandalam Investment, adding that consumers' changing preferences with regard to automobiles will spur the change.

Others like Mr Ravi Todi, MD of Shrachi Securities, agree. "We have generally seen an increase in the use of second-hand vehicles. As an NBFC (non-banking finance company), we can identify the emergence of a new opportunity in this arena," he said.

As for trends, here are some numbers collated by ICRA Ltd. One, the average-sized ABS was Rs 290 crore in 2004-05, almost twice the previous year, with some of the leading bankers playing a key role.

Two, the overall structured finance market swelled by about 120 per cent in fiscal 2005 in terms of value. Three, ABS remained in the No. 1 slot, contributing over 70 per cent of this market.

The recent months have also recorded the appearance of `repackaged ABS', noted rating agencies.

This, it is pointed out, relates to cash flow on existing pass-through certificates issued under an ABS transaction - acquired by a new special purpose vehicle even while new pass-through certificates are issued.

The bigger entities in the financial services space are all readying for higher disbursements in the coming days, said Mr P.K. Gupta, CMD of United Bank of India, adding that each player is trying to garner a bigger pie of the retail lending market.

The asset-backed securitisation scenario has swelled as a consequence.

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