Non-banking finance companies (NBFCs) and housing finance companies (HFCs) will likely see a fall in securitisation volumes in the current fiscal (FY22), primarily due to the possibility of localised lockdowns in the wake of rising Covid-19 cases, rating agency Icra said in a report on Tuesday.
As per Icra, for the current fiscal, securitisation volumes are expected to be around Rs 1 lakh crore -Rs 1.1 lakh crore, lower than its earlier estimates of about Rs 1.2 lakh crore. Nonetheless, securitisation volumes would still be 15-20% higher than the volumes of Rs 87,000 crore reported in FY21.
During April-December, non-bank lenders’ securitisation volumes stood at Rs 71,800 crore as against Rs 47,100 crore in the corresponding period a year ago, as per Icra data.
“Lockdowns not only impact the collection ability of lenders as staff members fall ill, but also the income generating ability of the borrowers for a temporary period. In the event that the severity of the Covid infections grows and results in higher hospitalisation rates, the state governments may impose stringent lockdowns to control the spread of the virus,” said Abhishek Dafria, vice president and group head of structured finance ratings at Icra.
“Securitisation volumes could, thus, be affected in Q4 FY2022 (January-March) because the NBFCs and HFCs may curtail disbursements, especially to Covid-impacted sectors, and investors would prefer to wait for the threat to subside. Higher proportion of securitisation transactions are usually placed in March and thus we hope the spread the virus would be contained sooner. Nonetheless, lower disbursements would also impact the growth of the securitisation market in FY2023, which is still at 50% of the volumes seen in the pre-Covid period,” he said.
Icra said despite securitisation through direct assignment (DA) transactions accounting for about two-thirds of total volumes, preference for pass through certificates (PTCs) has increased due to the concerns around Covid-related disruptions. Also, preference for secured asset classes has continued, with mortgage-backed loans and gold loans accounting for 42% and 10%, respectively, of total securitisation in the quarter ended December.
“The split between PTC and DA has alternated this year with share of PTCs increasing in Q1 FY2022 (April-June) at the time of the second wave of the pandemic, and again in Q3 FY2022, which saw the rising share of Omicron cases towards the end of the quarter. Another visible trend is preference of investors towards secured asset classes like mortgage loans and gold loans whereas aversion to unsecured asset classes like microfinance and small business loans as the performance of the former have been better during the post-Covid period,” said Sachin Joglekar, assistant vice president and sector head at Icra.