Securitisation volumes in January-March surged to around Rs 40,000 crore, the highest in all the quarters of 2020-21 fiscal year, says a report.
Despite this rise, securitisation volumes closed below the psychological Rs 1 lakh crore mark in 2020-21, down from nearly Rs 1.9 lakh crore clocked in each of the previous two fiscals, Crisil Ratings said in a report.
Securitisation refers to the pooling of various contractual debts like housing, auto and commercial loans and selling their related cash flow to third-party investors. “The better-than-anticipated rise in volumes in the second half and specifically final quarter of last fiscal points to the resilience of this segment to interruptions brought on by the COVID-19 pandemic in the broader economy,” the agency's senior director Rohit Inamdar said in the report.
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The securitisation market had started to open up last fiscal as containment restrictions were withdrawn, commercial activity resumed and the moratorium period announced by the Reserve Bank of India drew to a close in August 2020. Due to this, deals comprising nearly three-fourths of annual volume were executed in the second half of the fiscal, the report said.
Over 100 entities securitised assets during 2020-21, with more than 15 entering the market for the first time.
Private and public sector banks invested in more than two-thirds of securitisation issuances while foreign banks invested in around ten per cent and mutual funds, insurance companies, NBFCs, and high-net-worth individuals (HNIs) accounted for the bulk of the rest, it added.
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In the fiscal, Asset-Backed Securitisation (ABS) deals accounted for nearly two-thirds of securitised volumes. Mortgage-Backed Securitisation (MBS) issuances, with underlying home loans and loans against property, comprised the remaining, with investors drawing comfort from stable collection efficiency in MBS pools in the post-moratorium period.
According to the agency's senior director and deputy chief ratings officer Krishnan Sitaraman, in the Indian milieu, mortgage loans have been appreciated as a safe asset class for investors, given low delinquencies and minimal losses historically. “Bearing testimony to this, mortgage loan collection efficiencies recovered faster from the pandemic-driven slowdown than other asset classes last fiscal,” he said.
During the year, covered bonds, a structured finance product, involving primary recourse to the issuer with additional recourse to a pool of assets segregated from the issuer's balance sheet, drew investor attention and saw volumes build-up to close to Rs 2,000 crore.
Direct assignment (DA) transactions dominated issuance with as much as 59 per cent of the volume securitised through this route. Securitisation through the pass-through certificate (PTC) route comprised the remaining 41 per cent, the report said.
Going forward, the rating agency said, securitisation volumes in the near term could be impacted by rising Covid-19 cases and the resultant restrictions being imposed in a number of states.
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Many NBFCs may be compelled to refocus their energies on collections and fresh disbursements could take a back seat, it said adding that the containment measures, including a temporary suspension of movement (local and regional) and business activities, could inhibit borrower cash flows.
"If these impact collection efficiencies, they may again deflate returning investor confidence and inhibit securitisation volumes in the near term," it said. Inamdar, however, believes the track record of originators, improving collection ratios, and stable credit behaviour of borrowers may insulate the segment from much disruption in FY2021-22 if the spread, intensity and duration of the pandemic and accompanying containment measures are not significant.
