In urgent need of funds, non-banking finance companies (NBFCs) and housing finance companies (HFCs) sold retail and SME loans worth Rs 73,000 crore in October-December 2018 mostly to banks through securitisation, according to rating agency Icra.
The liquidity from the market almost froze in the aftermath of defaults by IL&FS and group firms in the second quarter ended September 2018. This forced Non-banking finance companies and HFCs to liquidate part of their existing loans to generate funds to meet redemption requirements and also partly finance growth in future, analysts said.
As per Icra estimates, the market has been particularly buoyant in Q3FY2019 driven by the prevailing liquidity crisis, with market volumes at around Rs 78,000 crore (monthly run-rate of Rs 26,000 crore). Out of this, around Rs 73,000 crore was raised by NBFCs and HFCs through sell-down of their retail and SME loan portfolio to various investors (primarily banks).
Domestic securitisation market volumes have touched an all-time high of Rs 1.44 trillion during the first nine months of FY2019 (till December 2018) as compared to Rs 84,000 crore for the whole of fiscal 2018.
Vibhor Mittal, Group Head–Structured Finance Ratings at Icra, says “Funds raised by NBFCs and HFCs through the securitisation route helped meet sizeable repayment obligations of the sector in an otherwise difficult market. Investor appetite, particularly from public sector banks and private banks, is high in the present times, considering that the investors are not exposed to entity level credit risk. It is seen as taking exposure to the underlying pool of retail and SME borrowers (to whom the Seller entities have lent).
The yields were also attractive for the investors, moving up by around 100-150 basis points in Q3 FY2019 compared to April-September 2018 (H1 FY2019).
Securitisation volumes were boosted further by RBI’s relaxation of the minimum holding period (MHP) criteria for long-tenure loans, which increased the quantum of assets eligible for securitisation in the system.”
The securitisation market in India can be segregated into two types of transactions – rated Pass Through Certificate (PTC) transactions, and unrated Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another), ICRA added.