Retail loans to be lower
Concerns could also emerge on servicing the ability of originators given the difficulties observed in changing the servicer in securitization market, according to Abhishek Dafria, Vice President & Sector Head, Structured Finance at ICRA Ltd.
“Besides, the tendency to hold on higher cash balances by investors (especially NBFCs, non-Priority Sector Lending (PSL) investors) and illiquidity of Pass Through Certificates (PTCs) could also impact the growth in securitisation volumes,” he pointed out.
“The funding requirements for NBFCs and HFCs are expected to be lower as the focus of lenders is likely to be on collections rather than fresh disbursements during H1 FY2021.
“Consequently, retail loan growth is projected to be lower with lesser loans qualifying due to negligible fresh disbursements in H1 FY2021; even as old/existing loans will continue to be under a moratorium,” said Dafria in the market outlook.
Overall, the Indian securitisation market is expected to remain tepid in H1 FY2021 due to the uncertainties emerging from the outbreak of the Covid-19 pandemic and economic slowdown, said ICRA commentary on 9 June 2020.
As the economy starts to gradually recover, the market is likely to recover and securitisation would again emerge as an important source of funding for NBFCs and housing finance companies (HFC)s in the long run.
The total securitization market remained buoyant in FY2020 and was around Rs.2 lakh crore, almost the same as in the previous year. The volumes on a quarterly basis were more spread out during FY2020 as compared to FY2019.
In the last quarter of FY2020 however, the volumes were down to 20% of the total annual volumes as compared to 28% in FY2019, due to the outbreak of the Covid-19 pandemic.
“Volumes could have been higher but for disruptions on account of the Covid-19 pandemic, which made the investors cautious. The speed with which normal economic activity resumes will be important to restore the confidence of the investors in the securitisation market,” he stressed.
In terms of share of priority sector lending (PSL) and Non-PSL transactions, a sustained increase in interest towards non-PSL assets was observed in FY2020 as compared to FY2019. The share of non-PSL assets increased to around 43% in FY2020 from around 38% in FY2019. The corresponding PSL assets share dipped to 57% from ~62%.
The sell-down market in India is largely segregated into two types of transactions, viz. PTC transactions (loans are sold to an SPV which issues PTCs) and Direct Assignment (DA) transactions (bilateral assignment of a pool of retail loans from one entity to another).
As per ICRA estimates, of the overall Indian securitisation market volumes of around Rs.2 lakh crore, PTC transaction volumes were around Rs.77,000 crore and DA transaction volumes were Rs.120,000 crore in FY2020, as against Rs.71,000 crore and Rs 1,28,000 crore in FY2019 respectively. fiinews.com
