Securitisation volumes in the country declined substantially in Q1 (April-June) FY2021 to about ₹7,500 crore from about ₹50,300 crore in year ago quarter, mainly due to the disruptions caused by the Covid-19 pandemic, according to credit rating agency ICRA.

The agency reasoned that the nationwide lockdown severely impacted the income generation capability of large number of borrowers.

This, in turn, made investors vary of investing in fresh securitisation transactions given the possible deterioration in the loan repaying capability of retail borrowers.

Securitisation transactions typically involve sale of a pool of loan receivables by a financier (Originator) to a Special Purpose Vehicle (SPV, typically a trust) and issue of Pass Through Certificates (PTCs, which denote a beneficial right on the receivables) by the SPV to the investors.

Another type of securitisation transaction involves unrated Direct Assignment transactions (bilateral assignment of pool of retail loans from one entity to another).

Loan moratorium detrimental to securitisation

ICRA said though the Reserve Bank of India’s loan moratorium policy provided relief to retail borrowers, it was detrimental to securitisation market as investors stayed away from pools with irregular cash flows in the initial months.

Further, the funding requirements for non-banking finance companies (NBFCs) and housing finance companies (HFCs) also declined during this quarter due to lower demand from the borrowers and the increased focus on collections rather than disbursements.

Abhishek Dafria, Vice-President and Head-Structured Finance Ratings, said: “Though the securitisation volumes were significantly lower during Q1 FY2021, the market saw an uptick in volumes in June 2020. More than two-third of the total volumes in Q1 FY2021 were completed in June 2020. We expect the overall volumes to see further increase in the coming quarters supported by the improvement in collections being seen across asset classes that would restore investor confidence.”

The traction will also be supported by NBFCs who have already recommenced disbursements, albeit lower amounts at present, and would utilise securitisation of their pooled assets as a funding tool, he added.

FY21 volumes to be lower

Dafria observed that the extension of the partial guarantee scheme of the Government of India up to March 2021 would also provide some support to increase securitisation volumes.

“Nonetheless, we estimate that the annual securitisation volumes should remain significantly lower in FY2021 than the preceding fiscal at about ₹1.2-1.3 lakh crore given the impact of the pandemic and the lower availability of eligible pools for securitisation.” Securitisation volume was around ₹1.95 lakh crore in FY20.

Share of various asset classes

ICRA said commercial vehicle (CV) loans emerged as the leading asset class accounting for around 31 per cent of overall securitisation volumes in Q1 FY2021. Some of the transactions in this segment were initiated towards end of FY2020, though were executed in the current fiscal.

The share of mortgage-backed securitisation transactions continued to shrink. Mortgages, which accounted for around 48 per cent overall volumes in Q1 FY2019, witnessed a reduction in share to 26 per cent in Q1 FY2021, due to exit of a few large-size originators in recent years from securitisation market.

Share of gold loan segment increased to 32 per cent of the total volumes in Q1 FY2021 as against 13 per cent in Q1 FY2020.

“Investor appetite for gold loan securitisation was supported by secured nature of the asset class which is also highly liquid security, better yields and stable portfolio performance. The rise in gold prices in the past quarter also improve the loan-to-value ratio from the lenders’ perspective reducing chances of any loss,” ICRA said in a report.

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