Issuance of securitized paper in major markets declined sharply in
2008 as a result of global credit crisis, though marginal recovery took
place in 2009. Indian securitization volumes, albeit much smaller than the global
levels, saw considerable growth till FY'08. However, volumes dipped in FY'09
due to the global credit crisis and the resulting liquidity crunch in Indian
market. With the global recovery backed by stimulus packages and improvement
in credit flow in the financial market, the securitization activity gained
momentum in FY'10.
Indian retail asset securitization market volumes grew by 38.7% to
Rs 26,780 cr in FY'10. The retail asset finance growth and demand for
priority sector loans further propelled the growth of retail asset
securitization market in India.
All Scheduled Commercial Banks (SCBs), excluding Regional
Rural Banks, are required to extend credit to priority sectors, viz., agriculture
and small scale industries. The Reserve Bank of India (RBI) has laid
down guidelines for `Lending to Priority Sector' which specify targets and
sub-targets for priority sector lending for domestic and foreign banks.
Domestic commercial banks are required to lend at least 40% of bank credit to
priority sector, while foreign banks have a target of 32%. The guideline has
comprehensively laid down broad categories of priority sector and sub-targets.
Investments by banks in securitized assets or outright purchases of loan assets
are eligible for classification under priority sector, provided the underlying
loans are eligible to be classified as priority sector loans. Banks short of priority
sector lending targets have been using securitization (including direct
assignment) as a tool to fulfill their targets.
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