Direct sale of loans by NBFCs and HFCs takes a knock in H1, says Icra

The securitisation of loans through direct assignment route by liquidity-strapped finance and housing finance companies (HFCs) fell 33 per cent on a sequential basis in the six months ended September 2019 to Rs 58,400 crore, from Rs 87,450 crore in October 2018-March 2019.

Rating agency ICRA said the direct assignment volumes have witnessed a decline in the first half (H1) of 2019-20 (FY20), mainly due to the weakened credit profile of a few originators having impacted their ability to securitise further. These players were traditionally large and active participants in the market.

After the Infrastructure Leasing & Financial Services (IL&FS) debacle, which led to a liquidity squeeze in the non-banking sector, the non-banking financial companies (NBFCs) and mortgage lenders have raised Rs 2.36 trillion in the past one year since October 2018 by selling down their loan portfolios, said ICRA.

Traditional borrowing routes for NBFCs and HFCs, such as bank loans, bond issuances, and commercial paper issuances have dried up after the IL&FS crisis. This has led to an unprecedented increase in securitisation of loan portfolios by the non-banks to manage liquidity challenges and asset liability management (ALM) mismatch challenges.

Abhishek Dafria, vice-president & head–structured finance ratings, ICRA, said, “NBFCs and HFCs continue to rely heavily on securitisation as a tool for raising funds, manage liquidity, and to correct any ALM mismatch. In addition, the partial credit guarantee scheme of the Centre will also add bulk to the overall market volumes.”

“With public sector banks directed to disburse funding of Rs 1 trillion under the partial credit guarantee scheme by February 2020, we believe the size of the securitisation market would be at an all-time high, in excess of Rs 2 trillion for FY20,” he added.

Securitisation under pass-through certificate (PTC) transactions was to the tune of Rs 92,000 crore in the past one year (October 2018-September 2019). In the second half of 2018-19 (FY19), PTC transactions were to the tune of Rs 47,500 crore, while in H1FY20, it was to the tune of Rs 44,500 crore.

According to ICRA, commercial and vehicle loans were the most sought-after segments in the PTC category along with small business loans. As far as the direct assignment route is concerned, the gold loan segment emerged as favourite for banks. Mortgage loans, which accounted for 45-50 per cent of the overall securitisation volumes, in 2017-18 and FY19 have seen reduction in their share to 30 per cent of the overall volumes in FY20.

There has also been a reduction in priority sector lending-driven transactions in the PTC space. The share of priority sector lending transactions has slowly reduced over the past three-four financial years and stood at 52 per cent for H1FY20, compared to 88 per cent in 2016-17, mainly due to changes in the investor base in PTC transactions.

ICRA expects securitisation volumes to remain strong in the near term, driven by the funding requirement for NBFCs that are not being fully met through other channels. The partial credit guarantee scheme of the government will also help propel volumes in the coming month, the rating agency said.