Securitisation volumes drop to Rs 7,500 crore in Q1FY21 due to pandemic

Lockdown impacted income generation capacity of many borrowers, making investors wary of fresh transactions given the likely deterioration in loan repaying capacity of retail borrowers

The pandemic and the subsequent lockdown, coupled with the moratorium on repayments announced by the central bank, have significantly impacted securitisation volumes which have falleb to Rs 7,500 crore in Q1FY21 from Rs 50,300 crore in the corresponding quarter a year ago, rating agency Icra said.

According to the rating agency, the lockdown impacted the income generation capacity of several borrowers, making investors wary of investing in fresh securitisation transactions given the possible deterioration in the loan repaying capacity of retail borrowers.

The central bank’s moratorium on repayments from March to August didn’t help the cause of securitisation either. “The RBI’s loan moratorium policy, though it provided relief to retail borrowers, was detrimental to securitisation market as investors stayed away from pools with irregular cash flows in the initial months.”, ICRA said.

Among the asset segments, commercial vehicle loans accounted for 31 per cent of the overall securitisation volumes in Q1FY21 and the share of mortgage-backed securitisation continued to decline to 26 per cent in Q1FY21, from 48 per cent of the entire volume in Q1FY19. The gold loan segment rose to 32 per cent in the current period, as opposed to 13 per cent share in Q1FY20.

“Investor appetite for gold loan securitisation was supported by secured nature of the asset class which is also highly liquid security with better yields and stable portfolio performance. The rise in gold prices in the past quarter also improved the loan-to-value ratio from the lenders’ perspective, reducing chances of any loss,” Icra said.

While securitization volumes in the quarter dipped significantly, June saw an improvement. In fact, more than two-thirds of the total volumes in Q1FY21 were completed in June. And, the agency expects the volumes to improve in the coming quarters, with collections picking up for shadow banks, albeit at a slower pace.

“The traction will also be supported by NBFCs who have already recommenced disbursements, albeit lower amounts at present, and would utilise securitization of their pooled assets as a funding tool”, said Abhishek Dafria, VP & Head–Structured Finance Ratings at Icra.

Furthermore, it is expected that government help to the ailing shadow banking sector in terms of extending the partial guarantee scheme will support securitisation volumes. “We estimate that the annual securitisation volumes should remain significantly lower in FY2021 than the preceding fiscal at about Rs 1.2-1.3 trillion given the impact of the pandemic and the lower availability of eligible pools for securitisation”, Icra said.