Securitisation as an enabler of green asset finance in India
Securitisation, which is the process of transforming a pool of financial assets (for example, mortgages or lease receivables) into tradable financial instruments, has great potential to mobilise institutional capital at scale.
In the past, India’s market’s growth has been hampered by regulatory hurdles including lack of clarity for different structures, tax inefficiencies and barriers to foreign investor participation.
These have now been largely addressed in the 2016 Finance Act and reforms in norms pertaining to participation of foreign institutional investors.
As of now the markets are showing growth signs of growth.
While most transactions in the Indian securitisation market have involved mortgages and vehicle loans, there is great potential for refinancing loans backed by green assets such as renewable energy, energy efficiency and low-carbon transport.
The securitisation of microfinance loans is already established in India and green securitisation can applied to sustainable farming and land management loans to help meet the sector’s financing needs.
Green securitisation can expand banks’ lending capacity by recycling balance sheet capacity and opening up a refinancing route for long-term loans.