“As on September 30, 2019, while securitisation volumes contributed to about 75% of the off-balance sheet portfolio of the NBFC-MFI industry, the remaining 25% shared was contributed by the BC model,” it said.
As conventional sources of funding for NBFC-MFIs remain inadequate, they tapped the securitisation market twice as much in H1FY20 compared to the year-ago period.
Given the current trend, the securitisation volume is expected to hit a record high of Rs 30,000 crore in FY20, said an Icra Ratings report.
As much as 40% of the total disbursements made by NBFC-MFIs was raised through securitisation, as against 18% a year ago, the ratings agency said. During H1FY20, NBFC-MFIs raised around Rs 14,000 crore, nearly twice as much raised in H1FY19.
Based on the trend over the past six months, the ratings agency expected the securitisation volumes for NBFC-MFIs to cross Rs 30,000 crore during FY20, higher than Rs 26,000 crore in FY19. Abhishek Dafria, vice-president and head – structured finance ratings at ICRA, said, “Post-demonetisation, the overall improvement in asset quality of NBFC-MFIs has led to increased confidence among investors — mostly public sector banks — which is evident from sustained rise in the exposure to the asset class and entities despite the absence of credit enhancements (as per RBI guidelines for the securitisation of standard assets, DA transactions cannot have any credit enhancements).”
Besides securitisation, the NBFC-MFIs are also increasing their focus on the business correspondent (BC) model to raise funds. “As on September 30, 2019, while securitisation volumes contributed to about 75% of the off-balance sheet portfolio of the NBFC-MFI industry, the remaining 25% shared was contributed by the BC model,” it said.
Direct assignment (DA) transactions, or bilateral assignment of retail loan pools from one entity to another, continue to remain the preferred mode contributing 78% in H1FY20 of loan sell-down for the microfinance asset class. Thirty-seven entities, including four that were new to the market, sold down their loan pools in
H1FY20, more than double of the number of entities in H1FY19, which stood at 17. “Going forward, ICRA is of the view that securitisation will remain a key source of funding for NBFC-MFIs in current fiscal year. However, factors such as consolidation in the sector, banks preference to origination of priority sector lending (PSL) assets via BC channel or through the co-origination model, and significant improvement in liquidity conditions may limit the pace of growth in securitisation volume,” said Dafria.