Moody’s Investors Service says that domestic issuance of structured finance transactions in India grew 90% to $5.5 billion in 1H07 from $ 2.9 billion in 1H06. Deal numbers almost doubled as well.
?This vigor confirmed the market has recovered the fast pace observed since 2000,? says Dominique Gribot- Carroz of Moody’s. ?With the retail lending business in India likely to grow, although possibly at a slower rate, we expect ABS issuance to increase in 2H07,? says Gribot-Carroz, adding, ?Banks, especially those active in the retail finance business, are likely to face capital constraints,? he said. In 1H07, ABS issuance grew more than 90% compared to 1H06. ABS accounted for 64% of the issuance in 1H07, thus remaining the largest product class. Issuance volume was also propped up by the securitisation of single corporate loans, which accounted for 29% of issuance in 1H07.
Only 3 RMBS transactions closed in 1H07 and accounted for 7% of issuance. While RMBS has a huge potential?given the significant expansion in the underlying housing finance business?the long tenure of such paper together with the lack of secondary market liquidity deters certain investors .
According to Moody?s regulatory measures and moves, such as recognition of PTCs as securities and permission for government pension and provident funds to invest in securitised paper could further boost the securitisation market. The potential launch of real estate mutual funds (REMFs) may also facilitate institutionalisation of the real estate sector and encourage RMBS and CMBS issuance. Foreign exchange capital control is still the main stumbling block towards significant development of India?s cross-border market. No such deals emerged in 1H07, although some deals are expected in the later part of the year, similar to what happened in 2006. The RBI which had issued new draft guidelines in May only allow only single-name credit default swaps and strictly on a hedging basis.The guidelines are important step in facilitating the development of Indian credit markets. However, the RBI is maintaining a cautious approach. Constraints include among others, restrictions on permitted participants.