Regulations on a new tax regime, foreign portfolio investors and
new bankruptcy code will transform India’s finance market
Global credit rating
agency Moody's Investors Service on Monday said the three recent regulatory
changes made by India will have transformative implications for its structured
finance market.
"The changes will
improve returns to investors, promote foreign investment, and improve the
resolution process in the event of default, thereby strengthening creditor
rights," Vincent Tordo, an analyst with Moody's, was quoted as saying in a
statement.
"Specifically, the
measureas are a new tax regime that will lift post-tax investment returns from
securitisation trusts; changes in regard to foreign portfolio investors (FPIs)
that will encourage foreign investment and changes to deal structures; and a
new bankruptcy code that will reinforce creditors' rights," Tordo said.
Moody's conclusions were
contained in a just-released report on India's securitisation market, "New
Regulations Pave Way for Market's Transformation; Improved Creditor
Rights".
"Together, these
three changes will help -- as indicated -- further develop India's structured
finance market, and allow securitisation to play a bigger role as a source of
funding in the economy, an objective promoted by the government," said
Tordo.
According to Moody's, the
new tax rule will increase post-tax returns from investments in pass through
certificates (PTCs). The issue volume of PTCs have fallen due to lower demand
from bank investors put off by current lower returns.
The participation of
foreign investors through the new FPI rules will help the Indian market evolve
so that it becomes more in line with global practices; for example, encouraging
it to evolve away from structures with single tranches and single investors
into those with multiple tranches and multiple investors.
The bankruptcy code, once
implemented, will over time strengthen the legal framework of India's credit
markets by significantly increasing the bargaining power of creditors against
debtors in the resolution of distressed assets, Moody's said.
The code will also
provide greater clarity on the insolvency process, a key aspect of the risk
analysis of securitisation transactions, Moody's said.
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