Securitization offers Indian banks an opportunity to free capital, generate liquidity and manage assets and liabilities.

Securitization, the process of converting illiquid loans into tradable securities, has emerged as an important tool for financing worldwide. Securitization has gained increased acceptance in India over the years. It started in India in the early 1990s when Citibank securitized a pool from its auto loans. Since then, securitization has emerged as an important tool for fund-raising by Indian banks and non-banking financial institutions. Some commentators have blamed excessive securitization for the recent global credit crisis which originated in the western world. However, blaming `securitization' for the recent global mess is like blaming airplanes for air crashes. Securitization is just a tool and its outcome, good or bad, depends on its proper or improper use. Indian securitization market is relatively small as compared to global volumes, and the Indian regulations are well articulated that there has not been a single reported instance of defaults on a securitized paper so far.

Global issuance of securitized paper declined in 2008 subsequent to the credit crisis. Indian securitization volumes, albeit much smaller than the global levels, have grown considerably over the last five years, except for a decline in FY2009. The volume of Indian securitization transactions is estimated to be about Rs 500 bn in FY2009. Priority sector lending requirement of Indian banks was the key driver behind the retail securitization transactions during FY2009. A majority of the retail loan pools securitized in FY2009 were backed by priority sector loans originated by Non-Banking Finance Companies (NBFCs). Transactions through direct assignment route dominated the market in FY2009, as this route facilitates the transfer of priority sector loans directly to the acquirer's loan book instead of investment book and thereby fulfilling priority sector lending requirement.

The Analyst Magazine, Securitization, Indian Banking, Capital Adequacy Management, Indian Securitization Transactions, Non-Banking Finance Companies, NBFCs, Global Mess, Indian Securitization Market, Global Credit Crisis, Housing Finance Companies, Private Sectors Banks, Mutual Funds, Insurance Companies, Corporate Sectors.