Finance companies sell Rs 25,000 cr loans in Q2FY22, up 65% year-on-year

Activity rises as investors' fears over collections ebb

Non-banking finance companies and housing finance firms (HFCs) sold loans worth Rs 25,000 crore through the securitisation and direct assignment (DA) in the second quarter (Q2FY22), up 65 per cent over the same period last year. Sequentially, volume of activity was 45 per cent over Rs 17,200 crore in June 2021 quarter (Q1FY22).

Reflecting receding investor concerns about collections, the share of DA moved back to the normal trend of two-third of volumes Q2FY22 from 50 per cent in quarter ended June 2022 (Q1FY22), according to rating agency Icra.

The split between through securitisation (pass-through certificates, or PTC) and DA had seen a reversal of sorts in Q1FY22 with PTCs accounting for half of the volumes instead of one-third. This was because investors preferred PTCs which offer credit enhancement unlike DAs, which involves bilateral assignment of pool from one entity to another.

As is typical in the sector, the last month of the quarter contributed to the bulk of these volumes with ~60% of the quarterly transactions (by volume) being placed in September 2021.

Despite the second wave, the securitisation volumes in the first half of the current fiscal have been higher at Rs Rs 42,200 crore in H1 Fy22 versus about Rs 22,700 crore in H1 Fy21. This was supported by the improving economic conditions, more selective and localised lockdowns, increasing disbursements and improvement in the collection efficiencies across asset classes.

As Covid-19 vaccinations have picked up pace, the linear growth in securitisation volumes is expected to continue over the next two quarters of the fiscal. Icra estimates that the annual securitisation volumes could reach about Rs 1.2 trillion for FY22 which would imply a 40 per cent increase from the volumes seen in FY2021.

The volumes for the quarter were marginally impacted due to new securitisation guidelines introduced by the Reserve Bank of India on September 24, 2021. Some market participants preferred to put transactions on hold until they were well-versed with the new regulations. Nonetheless, the new guidelines will have a positive impact in the long term in terms of widening the securitisation market.

Assuming the retail credit quality holds and is not impacted by any further resurgence of Covid infections, the securitisation volumes in the second half of the fiscal to be significantly higher than the first half, Icra added.