Page 26 - Banking Finance April 2021

ARTICLE

standard assets to retain "skin in the game" and have The committee released its report on dated 5
a continuing stake in the performance of the securitized September, 2019. Specific measures were
assets, referred to as minimum retention requirement recommended to facilitate second market trading in
(MRR). The loan or financial asset must stay on the books securitized instruments. They recommended various
of an originator for a minimum length of time, being measures to improve the securitization market in India.
the minimum holding period (MHP) before it can
Y To boost securitization market in India, RBI temporarily
become a part of the pool to be securitized. The MRR
relaxed the MHP requirements for NBFC originators up
and MHP provided for a more effective screening of
to 31 December, 2019. RBI has further extended the
loans by the Banks, NBFCs and other FIs prior to the
relaxation of MHP till 30 June 2020. By this relaxation
securitization of such assets. of MHP a larger asset pool were eligible for
Y In September 2018, the Indian NBFC sector suffered a securitization by NBFCs. This led to a surge in
setback due to Infrastructure Leasing & Financial securitization and assignment of auto loans/vehicle
Services Limited (IL&FS) crises. loans/finance lease receivables/microfinance/consumer
durable loans & education loans.
Y The financial sector faced another roadblock in mid-
2019, when housing finance company, Dewan Housing
Finance Limited (DHFL) failed to make interest Conclusion:
payments to its bond holders, leading to its credit rating The success of securitization depends upon the ability of original
being downgraded to "D". borrower to repay their debt against which securitization has
Y The resulting panic in the market saw traditional been done. It is also fully dependent upon the Scientific Credit
Rating System, Standardized Loan Documentation System &
sources of funding disappear for other NBFCs, and raised
concerns on debt servicing. With such a sudden drop in Proper Accounting System. To add to its success the SPV should
be separate organisation, instruments arising out of
willing lenders, NBFCs looked to securitize their
standard assets to finance their funding requirements, securitization should be listed in stock exchange & adequate
and the Indian market witnessed a growth in the guidelines should be given by regulators.
volume of securitization.
The securitization market will see an increased spread across
Y In the first quarter of the financial year 2019-2020, the
asset classes and products. Securitization is likely to remain
Indian securitization market seen the highest issuance
on the upward curve in the near future due to various
volumes as compared to the first quarter of any financial
developments on the regulatory front, continuing need for
year (with 56% y-o-y growth over the same period in liquidity by Banks/NBFCs/FIs, growing appetite of investors,
the previous fiscal year). innovation of new and varied products and portfolios by
Y The RBI has constituted a special committee to review NBFCs and finally the regulator's willingness to further
the state of mortgage-backed securitization in India. develop the market. T

NITI Aayog submits first list of 12 PSUs for privatisation
Kicking off the privatisation drive, NITI Aayog has recently submitted its first list of 12 Public Sector Undertakings for
privatisation. The list will be reviewed by the Department of Investment and Public Asset Management (DIPAM), and
the Core Group of Secretaries on Divestment (CGD).
The list comprises public sector banks and insurance companies and will be its first following the government's ambitious
drive to privatise PSUs, as announced by Finance Minister Nirmala Sitharaman in Budget 2021. This would clear the
way for Centre to go ahead with its Rs. 1.75 lakh crore disinvestment target for the next financial year.

Finance Minister, in her Budget speech, had announced privatising two PSBs and a general insurance company in 2021-
22. As per the new PSE policy for Aatmanirbhar Bharat, NITI Aayog is entrusted with the task to suggest the names
of PSUs in strategic sectors to be merged, privatised, or made subsidiaries of other PSUs.
Meanwhile, PSEs functioning as autonomous organisations, regulatory authorities, trusts, and development financing
institutions such as Food Corporation of India and Airports Authority of India have been kept out of the policy.

26 | 2021 | APRIL | BANKING FINANCE