Liquidity troubles for NBFC-micro finance companies could continue as securitisation volumes are likely to decline in the current fiscal due to the coronavirus pandemic, said a new report by ICRA.
The agency expects the securitisation volumes for NBFC-MFIs to be impacted significantly in 2020-21 due to the Covid-19 outbreak impacting the operational activities involved in executing transactions during the first quarter and availability of securitisable loans in originators’ books caused by substantially lower incremental disbursements in March 2020 and first quarter.
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It would also impact investors’ interest towards the loans which were under moratorium and their cautious view on the high-risk MFI sector as a whole, and portfolio growth and quality due to growing concerns on credit profiles of MFIs impacting their funding pipeline, ICRA further noted.
“MFIs could continue to face challenges in raising funds over the near term as securitisation of their pooled loan assets, which has been a key funding tool in the past two years, could see a rather sharp decline in 2020-21, at least in the first half depending upon the severity and the longevity of the Covid-19 pandemic,” said Abhishek Dafria, Vice-President and Head - Structured Finance Ratings at ICRA, noting that many of these players are already facing a number of challenges.
Securitisation volumes in the MFI sector are expected to pick up only towards the end of the second quarter of the current fiscal, ICRA said, adding that in the past, the NBFC-MFI sector displayed remarkable resilience despite facing several headwinds like demonetisation and natural calamities.
“Thus, the ratings agency is of the view that disbursements in the sector will once again slowly revive, once the lockdown eases and economic activity resumes. Securitisation will continue to remain a key source of funding for NBFC-MFIs in the long run,” it said.
As per data collated by ICRA, NBFC-MFIs raised about ₹27,000 crore in 2019-20 and about ₹26,400 crore in 2018-19 through securitisation, which supported their rising disbursement levels and subsequent growth in assets under management.
“The funds raised via securitisation contributed to about 42 per cent of the total disbursements made by the NBFC-MFIs in 2019-20 as against 37 per cent in 2018-19,” ICRA said on Thursday.
It noted that while Covid-19-related lockdowns are also expected to be eased out sooner in the rural areas, the improvement in collections may be seen only over a longer time frame and investors in the securitisation market may not be keen to purchase MFI loan pools until confidence on the collection efficiencies is re-established.