(Bloomberg) — India’s asset-backed securities market has surged to a record as global banks ramp up purchases to gain exposure to one of the world’s fastest-growing major economies.
Foreign banks’ share in total issuance grew to about 35% in the year ended March, from 28% to 30% in each of the preceding two fiscal years, according to Krishnan Sitaraman, chief ratings officer at Crisil Ratings. Based on the total asset-backed debt sales of 1.53 trillion rupees ($16 billion) in the year ended March, that translates into roughly $5.6 billion of purchases by overseas lenders.
Barclays Plc, Citigroup Inc
. and Standard Chartered Plc are among foreign lenders to have stepped up investments in such debt, according to people familiar with the matter, who asked not to be identified discussing private information.
Several factors are driving the shift. India’s retail credit market is growing rapidly, creating more loans that can be bundled and sold as securities. For banks, buying these loans can help them meet local priority-sector lending rules, which mandate that a portion of lending go to sectors including farming. These transactions also consume less regulatory capital than making some loans directly, Sitaraman said.
“For foreign investors, the appeal is not just yield pickup, but access to a fast-growing domestic credit market,” said Aditya Bagree, head of markets for India and the subcontinent at Citigroup.
Representatives at Barclays and Citi didn’t respond to requests for comment. Spokespersons for JPMorgan and Standard Chartered declined to comment.
Asset-backed securities are debt instruments backed by a pool of loans such as mortgages, vehicles, unsecured personal credit and gold loans. In India, securitization deals take two forms: ABS — locally known as pass-through certificates — and direct assignments.
Non-banking entities typically securitize loan portfolios with remaining maturities of one to 2.5 years, according to two foreign banks involved in such transactions. The average coupons range between 7.3% and 11.5% for securities rated AAA, AA and A, Crisil data show.
The market got a boost when billionaire Mukesh Ambani’s Reliance Group companies raised 210 billion rupees through asset-backed securities in September, marking one of the largest transactions of its kind in the country.
Despite rapid growth, India’s market remains much smaller than China’s total ABS issuance of 2.28 trillion yuan last year. Still, the increased demand has prompted local shadow lenders to issue more such securities to diversify funding sources.
HDB Financial Services Ltd., a unit of India’s largest private lender HDFC Bank Ltd., raised nearly 3% of its total liabilities via pass-through certificates as of March-end, compared with none a year earlier, according to Chief Financial Officer Jaykumar Shah.
For Aye Finance Ltd., securitized borrowings were 75 basis points to 100 basis points cheaper than tapping the local bond market because the transactions carried ratings three to four notches above the company’s own credit rating, Chief Financial Officer Gaurav Seth said.
“A lot of global banks and investors have shown interest because they get access to Indian assets and credits without having to actually give a loan or invest in the bond,” he said.
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