Steps to develop securitization of housing loans, secondary market for corporate loans
External benchmark for floating rate loans on hold
MUMBAI: The Reserve Bank of India (RBI) on Thursday (April 4) announced a host of measures aimed at strengthening and innovating the country’s credit market with increased focus on risk mitigation.
The Indian credit market has been passing through one of its worst phases with bank non-performing assets (NPAs) having witnessed their peak and non-banking finance companies (NBFCs) tasting a credit squeeze following the IL&FS debacle that drained the fund base as well as its trust from the industry in a big way.
Briefing on the new moves by the Reserve Bank of India (RBI) at a presser convened to announce the monetary policy committee (MPC) decision that cut the policy rates by 25 basis points – repo from 6.25 per cent to 6 per cent and the reverse repo from 6 per cent to 5.75 per cent, the RBI Governor Shaktikanta Das (seen in the picture), said the banks are now allowed to reckon additional two per cent of SLR as Level 1 high quality liquid assets (HQLA), which will create additional headroom for banks to lend more.
Announcing that a committee will be set up to explore the possibilities of developing a securitization market for housing finance, Das informed that RBI will soon establish a task force to look into the development of secondary market for corporate loans.
“Presently, the secondary market for corporate loans in India is dominated by transactions of banks in non-performing assets (NPAs) and is constrained by sparse information on pricing and recovery rates,” the RBI statement noted.
According to banking experts, these are steps in the right direction towards bringing India’s fast growing banking industry in line with that of the developed markets.
However, on the issues of countrycyclical capital buffer (CCCB) and the implantation of the much-discussed external benchmarks for floating rate loans, the RBI has decided to take a little more time to study deeper into all aspects before a conclusion is arrived at on its implementation.
“Taking into account the feedback received on the external benchmark during discussions held with stakeholders on issues such as (i) management of interest rate risk by banks from fixed interest rate linked liabilities against floating interest rate linked assets and the related difficulties, and (ii) the lead time required for IT system upgradation, it has been decided to hold further consultations with stakeholders and work out an effective mechanism for transmission of rates,” the RBI statement added.
The framework on countercyclical capital buffer (CCCB) was put in place by the Reserve Bank in terms of guidelines issued on February 5, 2015 wherein it was advised that the CCCB would be activated as and when the circumstances warranted, and that the decision would normally be pre-announced.
The framework envisages the credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators, viz., the Credit-Deposit (C-D) ratio for a moving period of three years industrial outlook (IO) assessment index (with due note of its correlation with GNPA growth), and interest coverage ratio (noting its correlation with the credit-to-GDP gap).
“Based on the review and empirical testing of CCCB indicators, it has been decided that it is not necessary to activate CCCB at this point in time,” the RBI explained.
RBI is working very seriously on making the Government securities market accessible to non-residents also. It is now proposed to commence the process of implementation of international settlement of Government securities by International Central Securities Depositories (ICSDs). RBI is of the view that this would open up a new channel for non-residents to undertake Government securities transactions.
“Operational details in this regard will be worked out with ICSDs in consultation with the Government and the Securities Exchange Board of India (SEBI),” RBI said.
