India: Biggest bank essays loan securitization
State Bank of India has decided to enter India’s rapidly growing market for securitized assets.
By Kautilya Shastri
In a deal that is expected to rewrite the rules of the game, India’s largest bank is getting ready to launch its first securitization transaction in June. It will be the first piece of a larger plan announced by State Bank of India chairman AK Purwar at the end of March to package and sell about a quarter of its total loans over the next two years. SBI has not yet revealed the nuts and bolts of the plan.
Securitization has steadily been gaining ground in India over the past few years. The market is still nascent, however. Total volumes between the 2002 and 2005 financial years, according to estimates by credit rating agency Investment and Credit Rating Agency (Icra), was around $12 billion. The compound annual growth rate over this period was a handsome 70.12%. Issuance had dropped off over the past year because the market was waiting for the Reserve Bank of India, the central bank, to announce guidelines for securitization of standard bank assets, which it eventually did in February 2006. Issuance is expected to pick up in the months ahead, with SBI leading the way.
The market for securitized assets is still narrow and lacks depth.