Growth in securitisation volumes to be tepid in FY21: ICRA

April 29 2020

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Credit rating agency ICRA on Tuesday said that the securitisation market is expected to face hurdles for the next 1-2 quarters due to the on-going disruptions caused by the Covid-19 pandemic.

Non-banking financial institutions (NBFCs) are likely to witness a spike in delinquencies across all asset classes due to the ongoing nationwide lockdown that has severely impacted the income generation of a large number of borrowers.

In FY2020, NBFCs and housing finance institutions raised funds of around Rs 1.97 lakh crore which was similar to the securitisation volumes seen in FY 2019.

"However, due to the ongoing nationwide lockdown that has severely impacted the income generation of a large number of borrowers, the NBFCs are likely to witness a spike in delinquencies across all asset classes, especially loans disbursed by micro finance institutions (MFIs), which could result in challenges in sell-down of their portfolio," ICRA said.

The credit rating agency noted that muted growth in the retail loan book of NBFCs and HFCs would also impact securitisation volumes for FY2021 as it will reduce the funding requirements as well as decrease the availability of loans eligible for securitisation.

"On the other hand, the priority sector lending (PSL) targets of banks and necessity to grow the loan book through inorganic buyouts would continue to support the securitisation market," ICRA said.

"NFBCs and HFCs could continue to face challenges in raising funds on their own balance sheets which may again lead to high reliance on selling pooled loan assets."

Notwithstanding the near-term challenges, as the lockdown situation eases and the economy starts to gradually recover, the securitisation market will again emerge as an important source of funding for NBFCs and HFCs in the long run, it said.

At present, the sell-down market in India is segregated into two types of transactions, viz. Pass Through Certificate (PTC) transactions and Direct Assignment (DA) transactions.

As per ICRA estimates, the PTC transaction volumes were around Rs 77,000 crore in FY2020 as compared to around Rs 71,000 crore for FY2019.

"Volumes for DA transactions were around Rs 120,000 crore in FY2020 as against around Rs 128,000 crore for FY2019," ICRA said.

"DA transactions continue to have a higher proportion in sell-down market as PSU banks, which form the largest investor segment, prefer DAs over PTCs."


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  • IANS