[sbinews] SBI decides to enter securitisation business (Business Standard)

  • From: "Rajendra S. Pai" <rs.pai@xxxxxxxxx>
  • To: <sbinews@xxxxxxxxxxxxx>
  • Date: Thu, 23 Sep 2004 08:59:41 +0530

SBI decides to enter securitisation business
 (Business Standard)
Poornima Mohandas / Mumbai September 23, 2004

State Bank of India (SBI), the largest commercial bank in the country, has
decided to securitise assets in a big way.

The PSU giant's entry may push other banks in the state-run sector to enter
the market.

Andhra Bank is the only public sector bank to have floated a mortgage-backed
security in the market.

The State Bank has got board approval and is setting up a securitisation
cell under the treasury wing to foray into this new activity. It is
currently readying its systems and infrastructure towards it.

"The entry of SBI into the market is a big development. The bank has a major
role to play both as an investor and as an originator and will induce higher
trading levels and liquidity in the secondary market," said Ramraju Pai,
head - structured finance ratings, Crisil.

SBI's entry is also expected to put pressure on other PSU banks to step into
the market. Till now PSU banks have been shying away from the market which
is dominated by private and foreign players.

SBI is entering the market with the intention of generating income from
buying and selling of securitised assets.

Securitisation essentially implies creation of securities or tradeable
capital market instruments. These securities are created by tying up a pool
of assets - normally receivables - and is sold to a trust which then issues
securities to investors.

The three main reasons why banks enter the securitisation market are-to
reduce exposure to any particular corporate/ industrial sector, to free up
capital by selling assets from the balance sheet and thereby increasing the
capital adequacy ratio and finally to generate profit from buying and
selling of securitised assets which contributes to the profit from the sale
of investments.

The current active players in the securitisation market in India are ICICI
Bank and Citibank. Other players include Kotak Mahindra Primus, LIC Housing
Finance, Housing Development Finance Corporation (HDFC) and former Ashok
Leyland Finance.

The market which started in the 1990s has spread mainly into two assets
classes - auto loans and housing loans.

In FY04 the total issuances in the securitisation market totalled about Rs
17,000 crore with about Rs 5,400 crore of securities backed by housing loans
and Rs 11,000 crore backed by auto loans.

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