Reason for slow growth of securitization in India

The growth of Securitisation in India is very slow compared to countries like United Kingdom and United States of America where it is very popular. Securitization is yet to pick up some momentum in India. There are still certain inherent defects for its slow growth in India.

Reasons or inherent defects for slow growth of securitization in India:

1. Lack of debt instrument market:

This market has not very much developed. Even the existing institutions such as United Trust of India (UTI) have not impressed the public.

2. Financial institutions support is lacking.

There is a lack of support from the financial institution. This is due to inadequate development of the money market.

3. Absence of agencies such as SPV.

The Special Purpose Vehicle (SPV) which plays a crucial role in the securitisation is absent in India.

4. Difficulty in Transfer of Assets:

Only Transfer of Property Act enables easy transfer of assets, while the other assets of commercial banks cannot be so easily transferred.

5. Higher Stamp and Transfer charges:

This hampers securitisation process as it increases the cost of securitisation.

In addition to the above, Financial institutions should come forward to create securitisation through a common arrangement which is not sufficient for the growth of securitization in India.

Future of Securitisation in India:

Improvement in the functioning of commercial banks and the increasing number of foreign commercial banks provide more scope for the creation of securitisation in future. If RBI could, on the lines of DHFC, create a permanent organization then there is more scope for Securitisation in India.

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