The Hindu Business Line : HFCs put on hold securitisation plans — No buyers for assets in view of tight liquidity conditions

Tight liquidity conditions have choked off the nascent housing securitisation markets in the country and potential issuers have been driven out for want of takers.

Bankers said that most housing finance companies (HFCc) have put on hold their securitisation plans. Several of them, till last year, had resorted to securitisation as a means to raise funds to improve capital efficiency. Sale of the assets was done to fund their fresh asset financing programmes. Buyers of securitised instruments included banks, insurance companies and mutual funds.

"They have all vanished from the markets," one banker said.

Till last year HFCs generated big profits out of sale of their housing loan assets. Besides, such deals also helped them keep the costs down.

Assets that were picked up at 7.5 per cent were sold to institutional buyers as pass-through-certificates (PTCs) at rates as low as 6.25 per cent. This allowed the banks/HFCs to book profits in excess of one per cent.

Securitisation volumes were at the highest in the 2003 and 2004 when debt markets were buoyant.

But such fund-raising opportunities are no longer available. Bankers said that even if securitisation were done in the current tight liquidity conditions, the discounts would be upwards of 8 per cent. This would have a big impact on their lending rates.

Some of the private sector banks/HFCs have however, already done some small tranches of securitisation deals at rates above 8 per cent.

Even these rates were expected to harden given the current trend , bankers said. Yields on the 91-day T-bill at Wednesday's auctions were 6.70 per cent and the 182 day T-bill 6.75 per cent.

Bankers said discounts would be at least 200 basis points above these yields. As liquidity tightens further, these spreads were also likely to widen further.

Bankers said, for the time being HFC/banks have opted for the National Housing Bank Refinance window for raising funds. Refinance from is available at rates between 7 and 7.5 per cent for banks. For HFCs also similar rates apply, though there is a mark-up above the NHB rate depending on the rating of the borrower.

The depression in the mortgage-backed securitisation market was also due to last year's hike in the risk weighting of the housing loans.

Last year, the risk weighting was raised to 0.75 per cent from 0.5 per cent.

But bankers said that some relaxations in the risk weighting were likely when the Basel two guidelines are fully in force.

The Basel II committee has recommended a capital charge of 35 per cent for mortgage-backed loans.

More Stories on : Securitisation | Housing Finance

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