Financial Daily from THE HINDU group of publications
Friday, Dec 05, 2003
Money & Banking
Securitisation is key tool for banks, says Crisil
Mumbai , Dec. 4
SECURITISATION, as a financial management tool, would be highly effective in the management of the asset liability profiles of banks, according to Crisil.
The banking business is inherently characterised by shorter-term liabilities funding relatively longer-term assets, which engenders a mismatch in the banks' structural asset liability management (ALM) profile.
While the stickiness and stability of the banks' liability profile largely mitigates this risk, securitisation offers a potent ALM management tool since banks can substitute assets that have a finite maturity period with cash on their balance sheet, said a Crisil release, quoting Mr Raman Uberoi, Director, Financial Sector Ratings.
Mr Krishnan Sitaraman, Head (Financial Sector Ratings), said: "Crisil's analysis reveals that on a three-year horizon, the banking system's maturing liabilities exceed its maturing assets by about 17 per cent.
Securitisation can reduce this gap by as much as 23.4 per cent. Moreover, it also allows banks to transfer maturity-related risks such as prepayment and conversion risks to third-party investors."
He added: "Since securitisation is a source of immediate liquidity, banks can use it as an effective tool to manage balance sheets that have a higher average maturity of assets than liabilities.
"By replacing assets having a pre-determined cash flow schedule spread over time with cash, securitisation shortens the average maturity of assets, thus improving the banks' ALM profile."
According to him, managing structural liquidity is a key element of the banks' risk management strategies and securitisation is a robust tool that enables them to effectively do just that.
According to Crisil's estimates, the banking system has a securitisation potential of over Rs 60,000 crore.
In estimating the quantum of benefits that the ALM profile can derive from this, Crisil compared the existing ALM gaps of the various bank categories with the estimated gap after simulated securitisations.
The analysis reveals that the ALM gap falls across all categories of banks.
The benefits on the ALM profile ranges from nine per cent for old private sector banks and nationalised banks to 63 per cent for new private sector banks.
This difference is largely on account of the higher securitisation potential envisaged for new private sector banks by Crisil. For the banking system as a whole, this benefit is estimated at 23.4 per cent.
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