Securitisation of retail assets by NBFCs, HFCs jump 61% in Q3

Securitisation of retail assets by non-banking finance companies (NBFCs) and housing finance companies (HFCs) saw a healthy 61 per cent quarter-on-quarter (QoQ) jump to about ₹24,400 crore in Q3 (October-December) FY2021 against about ₹15,200 crore in Q2 (July-September) FY2021, according to ICRA.

The credit rating agency observed that ever since the sharp fall in domestic securitisation volumes (to ₹7,500 crore) seen in Q1 (April-June) FY2021, the securitisation market has been on a path of revival on a sequential basis.

The number of originators that undertook securitisation has also improved 50 in Q3 FY2021 as against 45 and 18 in Q2 and Q1 FY2021, respectively.

ICRA opined that investors and originators are again seeing securitisation as a viable funding tool given the healthy collections seen across most asset classes post the end of the moratorium period in August 2020 provided under Reserve Bank of India’s ‘Covid-19 Regulatory Package’.

Nevertheless, the securitisation volumes remain below the pre-Covid levels as reflected in the 48 per cent year-on-year (YoY) drop in Q3 volumes. Securitisation volumes in Q3 FY2020 were about ₹47,000 crore

Abhishek Dafria, Vice President and Head - Structured Finance Ratings, ICRA, said: “The increase in securitisation volumes in the past two quarters could be seen as a sign of the path to normalcy for NBFCs and HFCs at least as far as disbursements are concerned.

“The Covid-19 pandemic and the nationwide lockdown had led to a major shock to the system especially in Q1 FY2021, but as the lockdowns have eased and the Government has taken steps to revive the economy, the retail loan demand has picked up. We have seen healthy increase in securitisation transactions, especially by HFCs in Q3 FY2021.”

Dafria underscored that most investors maintain stringent filters during pool selection. Still, there is a considerable increase in appetite for purchase of such retail pools, mainly in the secured asset class, which will augur well for the market.

The agency has maintained its annual securitisation volume estimate at ₹80,000 crore to ₹90,000 crore for FY2021 with the quarterly growth momentum is expected to continue in the next fiscal year.

Securitisation volume dominated by secured assets

ICRA said the securitisation volumes have been largely dominated by the secured asset class this fiscal.

The proportion of mortgage-backed securities (MBS, includes home loan and loan against property) in the total securitisation volumes improved to 42 per cent for Q3 FY2021 compared to 33 per cent in H1 (April-September) FY2021 as the asset class has seen the least disruption in collections due to the pandemic and consequently, relatively lower spike in delinquencies.

The agency assessed that securitisation of gold loan pools, backed by stable security, continued to find investors, forming about 15 per cent of the volumes seen in Q3.

Sachin Joglekar, Assistant Vice President, ICRA, said: “Due to the uncertainty in the environment caused by the pandemic, we have seen investors increase their focus to the secured asset class where the losses would be restricted due to the presence of adequate collaterals.

“The dominance of asset classes like mortgage-backed loans and gold loans is a clear indication of the same. On the other hand, unsecured loans like microfinance loans continue to remain limited in the securitisation market, forming about 5-6 per cent in Q3 FY2021, as against 15-20 per cent seen in FY2020.”

However, even microfinance entities have seen a healthy increase in disbursement levels in recent months. ICRA expects their share in securitisation to improve from Q4 (January-March 2021) onwards as they would have better pool availability meeting the investor criteria.

While the delinquency levels have seen an increase across asset classes as expected post the end of the moratorium, ICRA has observed that the credit enhancement available in its rated transactions have been adequate to take care of any shortfall in collections which would also give confidence to the investors.

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