Covid-19 surge may hit securitisation in the near term, says Crisil

FY21 volumes below Rs 1 trn as against Rs 1.9 trn in FY20

Securitisation volumes may be hit in the near term due to rising Covid-19 cases and the resultant restrictions being imposed in a number of states, according to rating agency Crisil.

Many non-banking finance companies (NBFCs) may be compelled to refocus their energies on collections, and fresh disbursements could take a back seat.

The rating agency said containment measures, such as a temporary suspension of movement (local and regional) and business activities, could inhibit borrower cash flows. If these impact collection efficiencies, they may again deflate returning investor confidence and inhibit securitisation volumes in the near term.

The securitisation covering sale of pooled assets to investors in Pass Through Certificates (PTC) and direct assignment to buyers had surged in the fourth quarter of ended March 2021 (Q4Fy21). With securitisation transactions amounting to Rs 40,000 crore, January-March 2021 period became the highest grossing quarter for the fiscal.

Despite this last-quarter surge, securitisation volumes closed below the psychological Rs one trillion mark last fiscal (Fy21), down from Rs 1.9 trillion clocked in each of the previous two fiscals, Crisil said.

The securitisation market had started to open up last fiscal as containment restrictions were withdrawn, commercial activity resumed and the moratorium period (on repayments) drew to a close in August 2020. As a result, deals comprising nearly three-fourths of annual volume were executed in the second half of the fiscal.

Further, as business activity picked up and borrowers resumed repayments, investors drew comfort from rising collection efficiency in securitised pools.

Additionally, non-banking financial companies (NBFCs)3 resumed disbursements and raised funds through securitisation to fund incremental needs.

Over 100 entities securitised assets during the fiscal, with more than 15 entering the market for the first time.

Referring to those investing in securitisation deals, Crisil said Private and public sector banks invested in more than two-thirds of securitisation issuances, while foreign banks invested in about 10 per cent.

The mutual funds, insurance companies, NBFCs, and high-networth individuals (HNIs) accounted for the bulk of the rest, it added.