Indian banks and financial institutions may now find it tougher to distribute the risk in their loan portfolios through the process known as securitisation.
The recent RBI diktat, which says that banks must hold on to loans at least for one year before they sell them down, could mean that this nascent market could take another hit in India.
This has left bankers worried, the reason being that more than 80 per cent of the loans they sell down are short-term loans.
According to analysts, corporate loan sell-downs, which were 68 per cent of the total market, could be worst hit immediately.
Securitization of retail loans, which are short term in nature, may also be hit and securitization of loans against gold and microfinance loans may get wiped out completely.
Analysts also say that while large banks may see some impact from these guidelines, it’s the smaller NBFCs that may take a hit.
Many NBFCs originate loans, specially in priority sector categories and then sell them down to banks almost immediately to help them meet priority sector targets.
However, if NBFCs are included in the new guidelines they would need to have additional capital to be able to service those loans.
Bankers say that it may force many NBFCs to cut down on business.
Ramesh G. Iyer, Mahindra Finance, said,"For NBFCs with large securitised portfolio it will have maximum impact, they may have to channelize more funding or shed business."
The move though could slow down the growth of the rapidly growing securitisation market. However, analysts believe it will ensure that lenders do not easily wash credit risk off their hands and maintain sound credit quality as they go along.