COVID-19 disruption: Securitisation volumes declined 85% in June quarter, estimates Icra

By: |
August 5, 2020 1:30 AM

“Such a drop in the volumes, is primarily attributable to the disruptions caused by the Covid-19 pandemic,” the agency said in its report.

The report also mentioned that commercial vehicle (CV) loans emerged as the leading asset class accounting for around 31% of overall volumes in the June quarter.The report also mentioned that commercial vehicle (CV) loans emerged as the leading asset class accounting for around 31% of overall volumes in the June quarter.

Securitisation volumes declined 85% year-on-year (y-o-y) in the June quarter to Rs 7,500 crore, compared to Rs 50,300 crore in the same quarter last year, according to Icra’s estimates.

“Such a drop in the volumes, is primarily attributable to the disruptions caused by the Covid-19 pandemic,” the agency said in its report.

Securitisation is a financial tool of selling pooled loans to investors, who generally buy them to meet their priority sector targets.

“The nationwide lockdown severely impacted the income generation capability of large number of borrowers. This made the investors vary of investing in fresh securitisation transactions given the possible deterioration in the loan repaying capability of retail borrowers,” the report said.

Abhishek Dafria, vice president and head — structured finance ratings at Icra, said, “Though the securitisation volumes were significantly lower during first quarter of 2021, the market saw an uptick in volumes in June 2020. More than two-third of the total volumes in first quarter of 2021 were completed in June 2020.”

“We expect the overall volumes to see further increase in the coming quarters supported by the improvement in collections being seen across asset classes that would restore investor confidence,” he added.

According to the report, although, Reserve Bank of India’s (RBI) loan moratorium policy provided relief to retail borrowers, but it was detrimental to securitisation market. RBI had earlier allowed six month moratorium on term loan for borrowers from March 1, 2020.

The report said that investors stayed away from pools with irregular cash flows in the initial months. Further, the funding requirements for non-banking financial companies and housing finance companies also declined during June quarter.

The decline happened due to lower demand from the borrowers and the increased focus of the on collections rather than disbursements.

The report also mentioned that commercial vehicle (CV) loans emerged as the leading asset class accounting for around 31% of overall volumes in the June quarter.

The share of gold loan segment increased to 32% of the total volumes in first quarter of 2021, as against 13% in the same quarter last year. Investor appetite for gold loan securitisation was supported by secured nature of the asset class which is also highly liquid security, better yields and stable portfolio performance.

The rise in gold prices in the past quarter also improve the loan-to-value ratio from the lenders’ perspective reducing chances of any loss, as per report.

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