Moody's: Securitizations can help fund India's growth agenda

Moody's Investors Service says that India's budget prioritizes growth over deficit reduction, which will increase the needs for new sources of long-term funding.

Recent policy announcements, including the recently-announced budget, support Moody's expectation that India's growth will remain stronger than the global average, and more robust than the median for similarly rated sovereigns.

According to Moody's, the new budget contains several measures that, if effectively implemented, will accelerate India's GDP growth. These include greater public spending allocations to infrastructure, as well as incentives for private sector investment in the sector.

Furthermore, the implementation of the Goods and Services Tax in April 2016 will lead to scale and productivity gains, and direct cash transfers for subsidy delivery could increase the efficiency of the social welfare system, although they will not reduce subsidy spending.

Moody's view is that the credit impact of the budget will depend on whether its implementation facilitates growth that is primarily driven by government expenditure or growth that sets the stage for higher savings, investment, productivity and profitability.

Moody's analysis is contained in its latest edition of Inside India, a quarterly publication looking at major credit trends prevalent in India. The publication also contains an article on the development of the securitization market.

As the country's economy grows and long-term funding needs increase, Moody's says that the India's securitization market can provide funds needed to finance housing, infrastructure and urbanization projects.

"While the government has injected its own capital to support various reform initiatives, securitization could play a significant role by providing funds to finance development projects," says Georgina Lee, a Moody's Assistant Vice President.

Moody's report points out that while securitization volumes in India increased by 29% year-on-year to INR490 billion in the fiscal year ended 31 March 2014, issuance levels have been volatile in recent years. Moody's attributes the volatility to regulatory and taxation considerations, which in turn have shaped the extent to which originators and investors have been motivated to tap into the securitization market.

Moody's also says that the emergence of a broader set of investors in India will be important for the development of the country's securitization market and the market's ability to help fund the economy, because the existence of a diverse range of investor types is key to a deeper, more liquid market and better price discovery.

Research highlights included in this edition are:

• India Budget: Credit Neutral for Sovereign, Positive for Corporates and Infrastructure, and a Mixed Bag for Banks
• RMBS Can Help Fund Housing Growth, But Challenges Remain
• Securitizations Provide Long-Term Funding Option
• Indian Non-Financial Corporates: Indian Bond Structures and Covenants Provide Strong Investor Protection
• Low Oil Prices will Pressure Vedanta's Credit Profile though Metals will Cushion the Impact
• India's Bank Capital Plan Is Credit Negative for Weak State-Owned Banks
• GDP Revisions Underscore Economic Strength, But Are Credit Neutral

Further data and analysis are covered in the India Dashboards section of Inside India new edition.

Moody's subscribers may access this report here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_179547