ICRA sees more than Rs.1.2 lakh crore securitisation volume for FY2022
Securitisation volumes by non-banking financial companies (NBFCs) and housing finance companies (HFCs) are estimated to have surged ~2,3x on Y-o-Y basis in Q1 FY2022 at Rs.17,500 crore of its loan assets compared to Rs.7,500 crore in Q1 FY2021, according to ICRA Ratings.
Due to the Covid-19 pandemic and resultant nationwide lockdown in March 2020, securitisation volumes had fallen significantly in Q1 FY2021. The country witnessed a much more severe second wave around the same time this fiscal which had resulted in another round of lockdowns. In spite of this, the securitisation market clocked higher volumes.
As per ratings agency estimate, the securitisation volumes for FY2022 could be more than Rs.1.2 lakh crore, of which majority would be in H2 FY2022, if there is no resurgence of Covid infections in the country.
ICRA Vice President and Group Head – Structured Finance Ratings Abhishek Dafria said, “Despite the onset of second wave in April 2021, securitisation volumes saw a robust Y-o-Y growth in Q1 FY2022. This was because the lockdowns during the current fiscal were localised and less stringent compared to the nationwide lockdown last year.
“Further, there was gradual ease in lockdowns in June across most geographies and gradual improvement in collection efficiencies of NBFCs thereby giving investors necessary comfort to participate in securitisation.
“To add to this, investors also applied stringent pool selection criteria whereby borrowers who had availed moratorium or whose accounts were restructured were filtered out.
“Another factor which supported the volumes was that unlike first quarter of last year, when microfinance sector was almost absent from the securitisation market, this sector has been able to restrict the decline in collections and thus been able to find investor interest in securitisation of its assets,” Dafria said in a release on 9 July 2021.
Traditionally, securitisation through Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) has accounted for about two-thirds of total volumes. The balance one-thirds share is accounted by Pass Through Certificate (PTC) transactions (loans are sold to an SPV which issues PTCs).
In Q1 FY2022, the volumes were almost equally distributed between DA and PTCs. The reversal in the split between DA and PTCs can be attributed to the fact that PTC transactions have credit enhancement in form of subordination and credit collaterals unlike DA transactions which do not have any credit enhancement.
ICRA Assistant Vice President and Sector Head Sachin Joglekar said, “Despite the uncertain macroeconomic scenario, investors in PTC transactions would remain protected to a large extent even if the losses in the pools were higher than expected since the credit enhancements are usually meant to absorb 4 to 5 times the usual losses in the pools.
“However, investors in DA transactions have to bear the entire extent of losses which would result in lower returns in case the losses are much higher than the expectations.
“In Q1 FY2022, ICRA has downgraded ratings of only one PTC transaction due to weak collections, while ratings of other transactions have been reaffirmed or upgraded supported by build-up of credit enhancement coupled with expectation of improvement in collections in Q2 FY2022,” said Joglekar. #banking #investment #economy /fiinews.com
