A study by CRISIL reveals that the retail securitisation market in India is better placed than it is in many other countries, notably the US.

The size difference notwithstanding, the Indian market-which is less than one-hundredth the size of the US market-has shown greater stability, with few rating downgrades, and zero losses on investor payouts.

According to Ajay Dwivedi, director, Structured Finance Ratings, CRISIL, ''From the highest rating of 'AAA' for structured instruments, only about two per cent of instruments have been downgraded over a one year time frame. This is quite comparable with the behaviour of CRISIL's 'AAA' ratings for other instruments.''

Securitisation Market in India
The Securitisation issuance which includes asset backed securities (ABS), mortgage backed securities (MBS), single loan sell downs (SLSD) / collateralised loan obligation (CLO) and direct assignment of loans is estimated to exceed Rs500 billion in F Y 2007-08.

Unlike the developed countries where MBS are more prevalent, it is the ABS papers which have been the main driver of the securitisation market in India contributing more than 50 per cent of the total issuance.

The most significant factor characterising securitisation in India is the robustness of the underlying retail assets. Unlike in the US, there has been no securitisation of 'sub-prime' housing loans in India.

The loans that have been securitised - principally loans for commercial vehicles, cars, two-wheelers, and (to a limited extent) homes - were made on the strength of the earning capacity of either the assets or the borrowers. Thus, unlike the US market which turned out to be vulnerable to residential property price movements, the securitisation market in India is relatively immune to asset price fluctuations.

The major originators  or issuers in securitisation transactions are private sector manks, non banking finance companies (NBFC) and housing finance companies (HFC).
The public and private sector banks, mutual funds and insurance companies are some of the major investors in securitisation transaction where the underlying asset vary from vehicle loans, construction equipment loans, personal loans, working capital loans, mortgage loans, corporate loans etc.

In February 2006, the Reserve Bank had issued guidelines for the securitisation market which has strengthened the core.
 
Worldwide, the securitisation has evolved from its tentative beginnings in the late 1970s to a vital funding source with an estimated outstanding of $10.24 trillion in the US and $2.25 trillion in Europe as of the 2nd quarter of 2008.

Warning for  the future
The Freddie Mac and Fannie Mae fiasco in the United States has acted as a warning for the Indian markets to employ due dilliegence. There is some weakness seen in a few sectors. The collection behaviour of retail loans has worsened somewhat over the past two years, CRISIL has stipulated higher credit enhancement levels to counteract this trend.

Recent car and commercial vehicle pools have had collections that are, on average, two percentage points lower than those on older pools at a similar stage in their life-cycle. Against this, on average, credit enhancement.

levels have risen by 2.5 to 4.5 percentage points, an increase of more than 50 per cent, over the past two years. According to  Prasad Koparkar, head, structured finance ratings, CRISIL, ''There will probably be more rating changes than before, but thanks to higher levels of credit enhancement, investors' payouts are still well protected from default.''

(See: Long-term positives of RBI's securitisation guidelines outweigh concerns: CRISIL)