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Loan sell-down activity, comprising securitisation and direct assignment, by banks and finance companies in India shrunk 7 per cent to Rs 830 billion in 2017-18, from Rs 900 billion in 2016-17, according to rating agency Icra.

Securitisation is pooling of contractual debt like home and automobile loans and credit card receivables, then selling their related cash flows to third-party investors as securities-like bonds. This was affected by a rise in trading into priority sector lending certificates (PSLCs) and uncertainty over applicability of the goods and services tax.

Pass-through certificate (PTC) volumes fell 24 per cent to Rs 348 billion in 2017-18. While volumes in direct assignment (DA) transactions rose 4 per cent to an estimated Rs 490 billion. The latter transactions involve bilateral assignment of a pool of loans from one entity to another.

Icra said the market saw a host of asset classes getting securitised for the first time or making a comeback after a long time. Corporate term loans, consumer durables loans, and education loans were some of the new classes that drew investor interest. 

Among traditional asset classes, housing loans were a third of total sell-down volumes. Followed by commercial vehicles at 29 per cent, microfinance at 13 per cent, and loans against property at 12 per cent, it added.

Vibhor Mittal, head of structured Finance at Icra, says achieving the PSL target is the main motive for investors in PTCs; for DA transactions, the motive is usually loan book growth. Thus, a dip in PTC volumes pursuant to the advent of PSLCs is on expected lines. 

Trading in PSLCs jumped to around Rs 1.84 trillion in 2017-18, from Rs 500 billion in 2016-17. It means banks relied much less on the securitisation route to meet the PSL shortfall.