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The securitisation market clocked the highest issuance volumes seen in the first quarter of any financial year at ₹50,300 crore in the April-June (Q1) 2019 quarter, recording a 56 per cent year-on-year (y-o-y) jump over the same period in the previous fiscal, according to credit rating agency ICRA.
The agency said the securitisation market continues to soar as the liquidity crisis in the non-banking finance companies (NBFC) sector — the key originator segment in the securitisation market — shows no immediate sign of abetting.
The securitisation volumes were ₹32,300 crore in Q1 FY2019 and ₹1.99 lakh crore for the entire FY2019.
Managing liquidity
“NBFCs and HFCs (housing finance companies) continue to rely heavily on securitisation as a tool for raising funds and managing liquidity. Other on-balance sheet funding avenues from both banks and capital market investors continue to be limited for most entities (barring a few entities with a strong credit profile),” said Vibhor Mittal, Group Head, Structured Finance Ratings, ICRA.
Banks (especially public sector banks) continue to remain the largest investor segment demonstrating strong appetite for acquiring both priority sector lending (PSL) and non-PSL assets through retail loan portfolio buyouts, he added.
Transaction types
The agency, in a statement, said the securitisation market in India can be segregated into two types of transactions — rated Pass Through Certificate (PTC) transactions, and unrated Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another).
ICRA estimates said the PTC transaction volumes increased by a whopping 95 per cent to ₹22,000 crore (₹11,300 crore in Q1 FY2019), while the volumes for DA transactions increased by around 35 per cent to ₹28,300 crore (₹21,000 crore in Q1 FY2019).
“It is notable that the market volumes have increased despite lukewarm participation from a few originators (that have traditionally been large and active participants) due to their weakened credit profile, that may also have impacted their ability to securitise,” the statement said.
Asset classes
Mortgage loans constituted the largest asset class in the DA market with around 46 per cent share in Q1 FY2020. Other asset classes such as micro loans (around 20 per cent share) and vehicle loans (around 17 per cent share) continued to receive strong investor interest due to the priority nature of these assets.
Even gold loans that are non-priority in nature found investor interest and constituted around 13 per cent share in DA volumes.
The PTC market also witnessed a strong and widespread participation from various issuers and investor segments, ICRA said. The number of issuers that participated increased to 34 in Q1 FY 2020 from 27 in Q1 FY2019.
Nonetheless, ICRA said the top five issuers continued to have a sizeable share (around 71 per cent) in overall PTC volumes. Vehicle loans alone accounted for around 51 per cent of the overall PTC volumes.
Other dominant asset classes include mortgage loans, small business (MSME) loans, micro loans and tractor loans.
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