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The revision in Reserve Bank of India’s norms for securitisation of loans is likely to impact shorter tenure consumer loans such as gold loans and small ticket personal loans, with fintech or digital lenders expected to be the most hit.
On December 5, RBI barred securitisation of loans with residual maturity of less than 365 days through the PTC (pass through certificate) route, other than for trade receivables.
The BNPL (‘buy now, pay later’) loans disbursed by fintechs are typically for up to 12 months and hence will now be ineligible for securitisation. Gold loan lenders will also witness a significant depletion of eligible pool, rating agency ICRA said in a note.
While the residual maturity norm is not applicable to DA (direct assignment) transactions, lenders, especially digital NBFCs, prefer PTCs as they offer credit enhancements to cushion against potential losses, and enable digital lenders to raise funds to augment their resources owing to the lower funding cost, CRISIL said.
“Though the DA route is available, the perceived risk profile of the asset class and absence of credit enhancement in DAs has thus far restricted investor interest,” said Samriddhi Chowdhary, Vice President, and Co-Group Head of Structured Finance Ratings at ICRA.
Minimal volume impact
The shorter tenures, combined with the MHP (minimum holding period) of three months, could lead to many gold and unsecured personal loans falling short of the norm. However, despite having gained traction in recent quarters, these loans accounted for less than 5 per cent of securitisation volumes in H1FY23, agencies said.
“The overall secondary market volumes (including DA transactions) of gold loan financiers and MFIs may not get significantly impacted as there is no such limitation on the balance tenure for loans sold under the Transfer of Loan Exposures,” CARE Ratings said in a note.
On the other hand, the impact on other asset classes such as microfinance, vehicle finance, SME loans and mortgages is expected to be limited considering average loan tenures of three or more years.
An analysis of microfinance institutions indicates 70-80 per cent share of loans with a tenure of over 18 months, implying ample availability of pools for securitisation, ICRA said, adding that it expects securitisation volumes to remain robust through 2023, led by strong credit demand.
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