Call this the liquidity crunch effect. With banks not lending and the commercial paper market in a comatose, housing finance companies (HFCs) are now betting big on securitisation deals to improve their liquidity position.

HFCs are expecting a ramp-up in securitisation deals in the coming days and some see the proportion of securitisation as a percentage of Assets Under Management (AUM) surging to 16-18 per cent from the current level of 12-13 per cent.

Securitisation is a very important tool for NBFCs/ HFCs to raise funds, and bilateral assignments of their retail lending receivables by Non Banking Finance Companies (NBFCs) to banks is a very common practice.

Ravindra Sudhalkar, Executive Director and CEO, Reliance Home Finance, said: “While we see the IL&FS default being a one-off case, it has spoilt the sentiment and squeezed out liquidity from the market.”

With banks not lending and restricted access to the capital market, one sees a rise in securitisation as a source of growth capital and funding for housing finance companies, he said.

On an average, the off balance sheet funding activity can surge from 12 per cent to 18 per cent in the current quarter ended December 2018, according to Sudhalkar.

Banks are now averse to lending to HFCs directly, mainly due to the fact that funding is unsecured. However, when it comes to buying parcel of receivable pool in the form of securitisation deals, there is more willingness on the part of banks as the exposure is secured. Also, securitisation deals with HFCs will help the bank meet its priority sector lending goals where the underlying assets are covered under PSL norms, say, for instance, affordable housing loans, said banking industry experts.

While securitisation provides immediate liquidity to HFCs, it also enables banks to build their loan books aggressively. This has been one of the modes of fund raising for HFCs / NBFCs over the years, and has enabled building of strong linkages between banks and HFCs / NBFCs.

Of the 96 HFCs in the country, only 18 are deposit-taking HFCs, and the rest have to depend on banks and capital markets for their funding requirement. As on date, India’s housing finance book is about ₹16 lakh crore. Of this, HFCs and NBFCs account for 40 per cent (₹6.4 lakh crore).

RBI relaxation

It may be recalled that the RBI had come out with a circular to relax existing guidelines on securitisation and encourage NBFCs to do more securitisation/assignment of their eligible assets.

For this purpose, the central bank relaxed the minimum holding period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above five years, to receipt of repayment of six monthly instalments or two quarterly instalments. This dispensation came with certain conditions and would be available for only six months, the RBI had said.

Finance Industry Development Council (FIDC), a self-regulatory body of asset-financing NBFCs, felt that the RBI move on reducing MHP would largely benefit housing finance companies as they usually lend for tenors in excess of five years.

In the case of NBFCs, the tenor is usually about three years and, therefore, the relaxation in minimum holding period should also apply to NBFC loans with a tenor up to five years, Raman Aggarwal, Chairman, FIDC, told BusinessLine .

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