Issuance volume in the Indian securitization market was Rs. 36,603 crore1 in FY20122, a growth of 15% over the previous fiscal. The increase in volume—following a continuous decline for three years—was on account of a 26% rise in the securitization of retail loans (both Asset-Backed Securitization or ABS, and Residential Mortgage-Backed Securitization or RMBS, cumulatively). As per the ‘Master Circular by the RBI for Lending to Priority Sector’ released in July 2011, loans by banks to NBFCs no longer qualify as Priority Sector Lending (PSL); post this change in regulation there was only one major way in which banks could meet their shortfall in priority sector lending targets, viz., acquisition of compliant portfolios from NBFCs. On the other hand, Originators’ (read NBFCs) motive in entering into these transactions was finer pricing, capital relief and tenure-matched funding, apart from keeping open an alternate fund-raising channel.

This led to a rise in transactions involving the bilateral assignment of retail loan pools mainly including loans to Small and Medium Enterprises (SMEs) or Small Road Transport Operators (SRTOs) and micro-credit, especially during the last quarter of the year. Bilateral assignments accounting for around 75% of ABS and RMBS volume in India continued to be the preferred route relative to conventional securitization, given that these transactions were not covered by RBI’s guidelines of Feb 2006 on securitization, thus making them less restrictive for Originators.