Securitised retail assets dipped 6 per cent to Rs 28,300 crore in FY14 from Rs 30,300 crore a year ago, and down 29 per cent from the peak Rs 40,000 crore in FY12, as the market moved to direct assignment route which is more attractive for both originators and investors, as per a report.
As per a report by domestic rating agency Care Ratings, the direct assignment route constituted the lion's share of the total volume at Rs 21,000 crore in FY14.
This was despite clarity on the taxation front as well as RBI guidelines on reset for credit enhancement (CE) for securitisation, which will help boost capital relief for the originators by the partial release of CE, the Care report said.
However, the RBI circular on change in treatment of the rural infrastructure development fund (RIDF) and certain other funds under priority sector guidelines has come as a relief for banks, but this could have a negative impact on new securitisation issuances going forward, the report warned.
The report also said though demand for priority sector loans continued to be the driving force of retail asset securitisation market, the recent RBI circular may reduce demand for priority sector assets going forward.
The asset backed securities (ABS) volumes stood at Rs 24,030 crore in FY14 while the share of ABS in total market volume stood at 84.9 per cent in the year. The CV/CE/PV markets continued to dominate the asset class, representing 74 per cent of the total ABS issuances in FY14.
Direct assignment route finds favour with investors again, as the securitisation market was primarily driven by direct assignments till FY12. But, after the introduction of new RBI guidelines in FY13 which stipulated that no credit enhancement be provided for direct assignment transactions, the market started moving towards SPV/PTC route as investors were more comfortable with the safety of credit enhancement provided in the SPV/PTC route.
Some of the factors for the buoyant growth in the direct assignment route market are taxation on PTCs, and the low yield of PTCs among others.
Introduction of the new tax regime for PTC deals, tax on income distributed by securitisation trusts which was earlier charged as a part of the investor's income became taxed at distribution enabled investors to adjust any expenses incurred against such income anymore.
Due to high demand for priority sector assets, the PTCs backed by such assets have very low yield compared to similar rated other market