Surge in Covid-19 cases, localised curbs to hit securitisation: ICRA

The securitisation volumes rose by 52.44 per cent to Rs 71,800 crore nine months ended December 2021 (9M FY22) compared to about Rs 47,100 crore in 9M FY2021. However, the activity is likely to be negatively impacted for FY2022, following the surge in fresh Covid infections and likely threat of localised lockdowns, according to rating agency ICRA.

The securitisation involves the sale of loans and assets to investors through assignment or issuing receipts. Non-banking financial companies (NBFCs) and housing finance companies (HFCs) are active players in selling their loan\assets through securitisation.

ICRA said it expects the full year volumes (FY22) to be around Rs 1 - 1.1 trillion, marginally lower than its earlier estimates of about Rs 1.2 trillion. Nonetheless, for the year, securitisation volumes would still be higher by about 15-20 per cent over the volumes of Rs 87,000 crore reported in FY2021.

The volumes in Q3FY22 itself were about Rs 29,000 crore. This translates into 13 per cent growth (quarter-over-quarter) and 19 per cent year-on-year growth. The volumes were marginally impacted by the threat of the spreading Omicron variant towards the end of the quarter, the rating agency added.

Abhishek Dafria, group head - Structured Finance Ratings, ICRA, said, securitisation volumes could be affected in Q4FY22 as the NBFCs and HFCs may curtail disbursements. They may cut disbursements to Covid-impacted sectors, and investors would prefer to wait for the threat to subside.

The higher proportion of securitisation transactions are usually placed in March and thus hope the spread of the virus would be contained sooner. Nonetheless, lower disbursements would also impact the growth of the securitisation market in FY2023, which is still at 50 per cent of the volumes seen in the pre-Covid period, he said.

Traditionally, direct assignment transactions (bilateral assignment of a 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).