Press Release
September 28, 2016 | Mumbai
Mortgage PTCs back in vogue in securitisation
Stable asset quality to attract insurance and pension funds
The surge in securitisation witnessed last fiscal, when transactions touched an eight-year peak of Rs 70,000
crore, continued in the first quarter of the current fiscal following clarity on distribution tax and because of banks
shifting to quarterly - instead of annual - assessment of priority sector lending targets.
Overall securitisation volume is estimated at Rs 17,000 crore for the first quarter of the current fiscal. Mortgagebacked securitisation (MBS), which includes residential loans and loans against property (LAP), accounted for
more than half of overall market volume this quarter compared with 42% last fiscal.
Importantly, pass-through certificates (or PTCs, issued by trusts or special purpose vehicles) were back in
vogue, ratcheting up 44% of securitisation market volume in the first quarter compared with 35% for the whole
of last fiscal. Investors in PTCs get protection against potential pool delinquencies through credit enhancement
as compared to the direct assignments (DAs, or direct sale of loans by originators -- mostly housing finance
companies and non-banking finance companies - to banks). Around a fifth of MBS was executed through the
PTC route this quarter compared with a bare 1% last fiscal, which saw DAs ruling the roost. Private banks were
the main investors in these PTCs.
Earlier this year, CRISIL had highlighted the potential for an increase in PTC transactions after the Union
Budget for this fiscal removed the distribution tax on securitisation, which persuaded investors, especially
private banks, to go for it.
Says Krishnan Sitaraman, Senior Director, CRISIL Ratings, “MBS issuances in India have demonstrated
high stability across economic cycles. Overdues in CRISIL-rated mortgage pools have historically
remained below 1%. And while LAP pools, which consist of chunkier loans, have greater susceptibility
to asset quality pressures, but they, too, have been steady thus far.”
CRISIL believes MBS PTCs - because of their longer tenures and lower delinquencies - can attract long-term
investors such as insurers and pension funds and also spur securitisation in non-priority sector loans, ultimately
leading to a deepening of the market. MBS is deemed as an ‘approved investment’ as per the Insurance
Regulatory Development Authority investment regulations. Likewise, the Employees Provident Fund
Organisation (EPFO) permits investment in PTCs. Insurers started investing in MBS PTCs in fiscal 2013,
pouring in almost Rs 2,000 crore. But the lack of clarity on distribution tax brought an end to the practice.
Says Ajit Velonie, Director, CRISIL ratings, “The stage is now set for a return of insurance companies as
investors in MBS PTCs. Potentially, pension funds could follow suit given the tax clarity and the fact
that such investments are aligned to their asset-liability management and investment objectives. The
investment assets of insurance companies, EPFO and the National Pension System in corporate bonds
are estimated at over Rs 6.2 lakh crore. Even a small percentage of this invested in securitised debt
instruments would provide a huge fillip to PTC volumes going forward.”
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CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is
registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of
independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire
range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, nonconvertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, assetbacked and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over
24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in
the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We
also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly
extended the accessibility to rating services to a wider market. Over 95,000 MSMEs have been rated by us.
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