NEED FOR SECURITIZATION IN INDIA -
October 1st, 2010
NEED FOR SECURITIZATION IN INDIA
The resource crunch the Indian economy is facing today for large-scale infrastructure investment is stupendous. Infrastructure needs to grow at least at 25% annual rate in the next few years to sustain 7-8% long-term growth of the Indian economy. Securitization alone can come to the rescue for providing long-term finance.
Securitization began in India in the early nineties. The CRISIL rated the first securitization programme in 1991-92 when Citibank securitised a pool from its auto loan portfolio and placed the paper with GIC Mutual Fund. The volume involved was about Rs. 160 million.
Analysts say the Securitization Bill, which allows banks to seize defaulters’ assets, would be a key trigger for banking stocks. Public sector banks, in particular, with huge non-performing assets would be the key beneficiaries. Today, the banking sector is plagued by huge non-performing assets which are estimated at over Rs 1, 00,000 crore.
The banking industry is currently burdened with bad loans that account for 14 per cent of their advances in gross terms and net NPAs at 7-8 per cent amounting to Rs 600bn.
Banks NPAs (%) 21st Nov 7th Dec %age change
State Bank of India 5.7 240.3 273.5 13.82
ICICI 4.7 120.7 134.85 11.72
Bank of Baroda 5.1 48 60.3 25.63
Bank Of India 6 28.5 31.65 11.05
Dena Bank 16.4 9.65 10.9 12.95
Global Trust Bank 9.2 15.05 17.35 15.28
Some of the new banks with higher valuations like HDFC Bank have very little NPAs, so they will not gain much on account of the bill. But some of the nationalized banks like Bank of Baroda, Bank of India, and State Bank of India have balance sheets that are riddled with NPAs.
Banks and financial institutions have sent notices to 10,000 defaulters threatening to take over their companies, if they don't come up with proposals to clear their dues. State Bank of India (SBI) had moved to seize the assets of a hotel in Nashik, forcing the borrower to agree on a repayment plan. This will improve the asset quality and boost profitability of banks.
The banking industry is targeting to reduce its non- performing assets to 5% this fiscal as against the current average of 7-8% while streamlining operations to improve profitability significantly. Banks will be able to recover up to 25-30 per cent of NPAs as such fixed assets may now have depreciated considerably. However, the bill is going to boost the bottom line of the banks.
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