The Hindu Business Line : Crisil outlines steps for banks to free up funds

Mumbai March 12 Securitising existing loans can help banks free up funds for lending without diluting equity or incurring the constraints of additional deposits, said a study by Crisil.

"This source of funds today works out to be 80 basis points cheaper than wholesale deposits," said a Crisil release.

This is mainly on account of the significant reserve requirements for deposits in the form of cash reserve ratio (CRR) and statutory liquidity ratio (SLR), which depress returns, it added.

The study also said that securitisation allows banks to churn their asset portfolios, reduce capital requirements and gain access to more cost-effective funding.

Securitisation involves sale of a pool of loan receivables to a special purpose trust.

"Banks could make a beginning by securitising highly rated single loans, which could release capital to the extent of nine per cent or more of the loans, and also remove the provisioning requirements which could be as high as two per cent," said Mr Ramraj Pai, Director (Structured Finance Ratings), Crisil.

"Funds raised would not be subject to CRR and SLR, resulting in a more efficient use of funds. Over time, the banks could evolve to more complex transactions and use securitisation more centrally from a funding perspective."