The securitisation volume in the third quarter (Q3/October-December 2020) of FY21 crossed ₹26,000 crore, trumping the first-half (H1/ April- September 2020) FY21 level of ₹22,000 crore, according to CRISIL Ratings.

The credit rating agency observed that the volume pick up happened as more originators entered the market; and, mutual funds, which had by and large stayed away in H1, started investing in new issuances.

This takes the total volume for the first nine months of this fiscal to about ₹ 48,000 crore, though that is still way behind fiscals 2018 (about ₹ 60,000 crore), 2019 (about ₹145,000 crore) and 2020 (about ₹ 1,52,000 crore.

CRISIL noted that the interest returned in the securitisation market, especially in September 2020, as the moratorium period for underlying assets ended.

Asset-backed securities

The agency stated that the stability in pool collections in the post-moratorium period has been a sign of confidence in securitisation for investors.

Consequently, mutual funds have joined banks, insurance companies, and high net-worth individuals (HNIs) as investors in securitisation transactions, albeit gradually.

Krishnan Sitaraman, Senior Director, CRISIL Ratings Ltd, said, “Disbursement activity at non-banking financial companies (NBFCs, including housing finance companies and microfinance institutions) has resumed in sync with the uptick in economic activity.

“With a gradual increase in investor appetite and amenable market conditions in the form of a lower interest rate environment, NBFCs have again started raising incremental funds through securitisation.”

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The agency said asset-backed securities (ABS) continued to dominate in retail securitisation this fiscal.

Commercial vehicle, gold, microfinance, tractor and unsecured personal loans comprised over two-thirds of the volume securitised, while mortgage-backed securitisation (MBS) transactions with underlying home loans and loans against property, accounted for the balance.

As much as 63 per cent of the volume securitised this fiscal has been through the direct assignment (DA) route, including those under the government-sponsored Partial Credit Guarantee scheme.

The agency observed that rising collection efficiency in securitised pools with underlying microfinance loans has increased investors’ appetite for fresh exposures in the sector.

Fund mobilisation by microfinance triples

Funds mobilised by microfinance entities through securitisation in the third quarter tripled from the first half of the fiscal. However, construction equipment-, vehicle- and tractor-backed pools constituted over half of ABS issuances, it added.

The agency is of the view that as economic activity rebounds, NBFCs are expected to shift their focus to incremental disbursements and consider securitisation as a key funding source.

Consequently, if collection efficiencies continue to be steady, securitisation volumes could spurt in the fourth quarter and, possibly, equal or even surpass cumulative issuance witnessed in the first three quarters of the current fiscal.

Rohit Inamdar, Senior Director, CRISIL Ratings, “Once lenders refocus on portfolio growth, they may choose to tap into securitisation for meeting their incremental funding needs.

“Investors, reassured by improved collection ratios, would likely drive the market. Traction in securitisation volumes will, however, be dependent on continued improvement in collection efficiency and stabilisation of the business environment for NBFCs.”

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