Securitisation sees 80% drop in H1FY21 due to Covid-19, moratorium: Crisil

The covid-19 pandemic and the moratorium granted on repayment by the Reserve Bank of India (RBI) has led to 80 per cent drop in securitisation transactions by value, said rating agency Crisil in a note on Tuesday. In H1FY21, securitisation transactions plunged to Rs 20,000 crore from Rs 96,000 crore in H1FY20. In H1FY19, they stood at Rs 68,000 crore and in H1FY18 at Rs 37,000 crore.

However, there are signs of recovery as September saw a rebound in securitisation transactions to Rs 10,000 crore. “Overall volume continues to be well below the levels seen in the past few years, when securitisation had become one of the preferred fund-raising tool for NBFCs”, said Crisil.

According to Krishnan Sitaraman, Senior Director, Crisil Ratings, as disbursements by NBFCs reduced in the first of the current financial year, it led to a reduction in the need of NBFCs to access the securitisation market to churn assets.

“Investors also preferred to wait on the sidelines, assessing the impact of moratorium on collection efficiency and credit behaviour, and awaiting clarity on improvement in borrower cash flows and economic activity”, he added.

More importantly, to tide over liquidity concerns, non-banks took recourse in funds made available by the RBI through long term repo operations and government’s partial credit guarantee scheme.

Asset backed securities made up for 70 per cent of the overall securitized volumes in H1FY21, up 1000 basis points compared to same period last financial year. For mortgage backed securities, direct assignment route was the most preferred option, accounting for nearly two-third of the deals done. And, as far as asset classes are concerned, commercial vehicle and gold loans comprised more than half of the transaction volume in the first half of this fiscal.

Supported by the government’s partial credit guarantee scheme, the direct assignment found many takers among banks in the past few months, accounting for almost 12 per cent of volumes.

“The number of active originators have increased in the past three months as portfolios under moratorium fell. Consequently, interest of investors, too, picked up, as more data became available on borrower behaviour during the moratorium”, Crisil said.

Interestingly, the investors have opted to buy assets which are not under moratorium. Private banks, insurers, and public sector banks have been the most active investors. But, mutual funds, major investors in recent years, have been largely inactive this fiscal.

The contours of the one-time restructuring likely for borrowers will determine the extent of the securitisation recovery in the near term. The spread, intensity and duration of the pandemic and further lockdowns will also be monitorables, the rating agency said.