‘Improving loan origination quality must for securitisation market to develop’

Chennai, Feb 5 (IANS) Securitisation of loan accounts is one way of improving liquidity of banks’ assets but the development of securitisation market depends on improving the quality of loan origination, said a senior official of the Reserve Bank of India (RBI) here on Friday.

“For the securitisation markets to develop, we need to improve the quality of loan origination, which solely depends upon ‘ownership of decisions’ relating to loan origination,” said deputy governor R.Gandhi.

He was speaking at the ‘Union Bank Conference on Financial Stability, Credit distress and Economic Growth: The way forward’ at the Great Lakes Institute of Management near here.

Simply put, securitisation is the sale of loan accounts to another player for a sum. The loan accounts thus transferred will not figure in the books of the seller.

According to Gandhi, directed lending in whatever form and outsourcing the loan appraisal function dilutes the concept of owning up this crucial decision of loan origination and contended that those who outsource the loan origination process have no commitment to the loan quality.

He also said central government – the owner of public sector banks – will be more than compensated by increased revenues and better valuations if the costs of social banking is provided through budgetary support after costing them on commercial principles.

Noting people perceive the public sector banks are relatively immune to destabilising impacts owing to government’s support, he said that the same sense of safety evades the government-owned banks when it comes to their valuations which in turn has an efficiency imperative – when judged by their returns on asset or capital employed.

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