The ban imposed by the Reserve Bank of India (RBI) on short-term loan securitisation will hit the industry, especially gold and personal loan segments as also microfinance borrowing, three rating agencies said in separate notes.The Reserve Bank on December 5 amended the master directions on securitisation of standard assets, barring securitisation of loans with residual maturity of under 365 days with immediate effect, other than for trade receivables.
The changes will limit the issuance of pass-through certificates (PTCs) backed by shorter tenure loans originated by non-banking finance companies (NBFCs) and will affect 5 per cent of such deals as the ban makes gold and personal loans out of bound for PTCs, the largest rater Crisil said in a note on Thursday.But it added that direct assignments are not expected to be impacted.Separately, Crisil said the minimum holding period (MHP) for mortgages has now been linked to the date of full disbursement, or registration of security interest.
In a separate note, India Ratings said assets which have a short tenor loans such as microfinance, gold loans, short-term personal and consumer durable loans will be affected by the regulatory change.Most MFI (microfinance institution) loans have a tenor of 18-24 months. The minimum holding period for loans with a tenor of up to 24 months is three months from the first installment date. This means the timeframe for securitisation will be eight months only, as these loans cannot be securitised during the first four months and the last 12 months of their tenor, it said.Krishnan Sitaraman of Crisil said gold loans and some unsecured personal loans offered by NBFCs have original tenures ranging from a few months to two years.
The shorter tenures, combined with the MHP of three months, and seasoning filters applied by investors could lead to many of these loans coming up short on the minimum 365 days’ residual maturity norm. However, PTCs backed by these asset classes currently account for less than 5 per cent of the securitisation market.The impact on other asset classes like vehicle finance, SME (small and medium enterprise) loans and mortgages is expected to be limited considering their original loan tenures of three or more years, he added.
The curb on residual maturity of loans is not expected to apply to direct assignment transactions. Gold loan securitisation mostly happens through this route. This would thus cushion the impact on gold loan financiers, who also enjoy the safety of collateral.On the other hand, credit losses are usually higher for unsecured personal loans, he said.Overall, PTCs account for 80 per cent of securitisation volume backed by these loans.India Ratings said total PTC volume in FY22 was Rs 57,000 crore, of which MFI PTC securitisation constituted around 9 per cent. The agency believes that the quantum of such issuances could go down in the near term as the pool of assets to be securitised will come down, which also reduces the weighted average seasoning of securitisation pools.The agency said gold loan securitisation, which of late has been picking up but with the MHP requirement it will not be possible to securitise the pool of gold loans.
According to the earlier RBI guidelines dated September 24, 2021, the MHP for secured assets was calculated from the date of registration of the underlying security interest.On the new definition of minimum ticket size of Rs 1 crore, India Ratings said for those securitisation with subordinated tranche, the new regulation can lead to restrictions on the minimum pool size.However, another agency Care Ratings said the changes are unlikely to have any significant impact on the overall retail asset as the secondary market share of fintech lenders in the overall market is very low and the impacted loans will continue to be eligible assets under direct assignment.On the restrictions on the securitisation of partially disbursed mortgage loans, Care said this is generally an accepted market practice and will not have any impact on the market volumes, while on mortgage loans this will be counted from the date of full disbursement or registration.