Securitisation recovers in Q3, up 61% at Rs 24,400 cr for shadow banks

Rating agency Icra estimates annual for FY21 securitisation at Rs 80,000-90,000 crore

After a few quiet quarters due to the pandemic, securitisation volumes have risen in Q3 of the current financial year with the shadow banking sector securitising Rs 24,400 crore worth of retail loan assets in the quarter, up 61 per cent sequentially, according to rating agency Icra.

In the same period (Q3FY20), non-banking finance companies (NBFCs) and housing finance companies (HFCs) securitized 47,000 crore worth of loans. Hence, on a year–on–year basis, securitisation volumes are down 48 per cent.

In Q1FY21, NBFCs and HFCs securitised Rs 7,500 crore worth of loans and in the next quarter the volume of securitised loans went up to 15,200 crore, indicating a gradual recovery on a sequential basis. It’s not only that the volume has picked up, even the number of originators who undertook securitization activity has also shown signs of improvement. In Q3, as much as 50 originators undertook securitization while it was 45 and 18 in Q2 and Q1, respectively.  

“Investors and originators are again seeing securitisation as a viable funding tool given the healthy collections seen across most asset classes post the end of the moratorium period in August 2020 provided under Reserve Bank of India’s Covid-19 Regulatory Package”, the rating agency said.

“Most investors nonetheless are maintaining stringent filters during pool selection, but there is a considerable increase in appetite for purchase of such retail pools, mainly in the secured asset class, which will augur well for the market”, it added.

The rating agency has estimated annual securitisation volume in the range of Rs 80,000–90,000 crore in FY21.

Among the asset class, it is mostly the secured assets that have dominated the securitisation volumes this fiscal year. Mortgage backed securities, which saw relatively lower disruption to the pandemic, therefore, resulting in lower delinquencies, has further strengthened its position in the total securitized volume from 33 per cent in H1FY21 to 42 per cent in Q3FY21.  On the other hand, gold loans formed 15 per cent of the volume in Q3.

“Due to the uncertainty in the environment caused by the pandemic, we have seen investors increase their focus to the secured asset class where the losses would be restricted due to the presence of adequate collaterals”, said the rating agency.

While secured asset classes saw good traction, the unsecured asset classes such as microfinance loans have seen their share in the securitisation market fall to 5-6 per cent in Q3FY21 compared to 15-20 per cent in the year ago period.