Securitisation volumes more than double Q1 despite pandemic: Icra

This happened despite the second Covid-19 wave; ratings agency estimates securitisation volumes for FY2022 at more than Rs 1.2 trillion

The securitisation volumes of finance companies and housing finance firms rose 2.3 times to Rs 17,500 crore in the first quarter ended June 2021 (Q1FY22), from Rs 7,500 crore in the same quarter last year despite the pandemic.

According to rating agency Icra, securitisation activity--offloading loans to investors and buyers through structural arrangement--had fallen significantly in Q1FY21 due to the Covid-19 pandemic and consequent nationwide lockdown in March 2020.

The country saw a much more severe second wave around the same time (Q1FY22) this fiscal which had resulted in another round of lockdowns. In spite of this, the securitisation market clocked higher volumes.

As per the ratings agency's estimate, the securitisation volumes for FY2022 could be more than Rs 1.2 trillion, of which majority would be in H2 FY2022, if there is no resurgence of Covid infections in the country.

Abhishek Dafria, Vice President and Group Head-Structured Finance Ratings, Icra, said there was gradual ease in lockdowns in June across most geographies and gradual improvement in collection efficiencies of NBFCs. This gave investors a necessary comfort to participate in securitisation.

To add to this, investors also applied stringent pool selection criteria whereby borrowers who had availed moratorium or whose accounts were restructured were filtered out. Also, unlike the first quarter of last year, when the microfinance sector was almost absent from the securitisation market, this sector has been able to restrict the decline in collections. This shaped investor's interest in securitisation of its assets.

Traditionally, securitisation through Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) has accounted for about two-thirds of total volumes. The balance one-third share is accounted for by Pass Through Certificate (PTC) transactions (loans are sold to an SPV which issues PTCs).

In Q1FY22, the volumes were almost equally distributed between DA and PTCs. The reversal in the split between DA and PTCs can be attributed to the fact that PTC transactions have credit enhancement in form of subordination and credit collaterals unlike DA transactions which do not have any credit enhancement, it added.