Securitisation volumes continue sequential growth in third quarter

Securitisation volumes halved to Rs 24,400 crore during the December quarter compared to the year-ago period, but showed a healthy 61 per cent rise over the preceding September quarter, a report said on Monday.

Domestic ratings agency Icra said it maintains that overall volumes of securitization, where a lender sells down its loan portfolio or future receivables to investors at a discount for upfront payment, will come at up to Rs 90,000 crore in FY2020-21, as against nearly Rs 1.90 lakh crore in FY2019-20.

The COVID-19 pandemic has had a deep impact on the securitization activity, and volumes plummeted to as low as Rs 7,500 crore in the June 2020 quarter, and have been growing every quarter after that.

The agency said the securitisation market has been on a path of revival on a sequential basis, and investors and originators are again seeing it as a viable funding tool given the healthy collections seen across most asset classes after the end of the loan moratorium in August 2020.

The number of originators that undertook securitisation has seen an improvement to 50 in the third quarter of FY2020-21 as against 45 and 18 in second and first quarters, respectively, it said.

The increase in securitisation volumes in the past two quarters could be seen as a sign of the path to normalcy for non-bank finance companies and housing finance companies at least as far as disbursements are concerned, the agency's head for structured finance ratings Abhishek Dafria said.

He said the COVID-19 pandemic and the nationwide lockdown had led to a major shock to the system especially in Q1FY21, but as lockdowns have eased and the government has taken steps to revive the economy, the retail loan demand has picked up.

Most of the investors are maintaining stringent filters during pool selection, but there is a considerable increase in appetite for purchase of such retail pools, mainly in the secured asset class, which will augur well for the market, he said.

The volumes have been largely dominated by the secured asset class this fiscal, the agency said, pointing that the proportion of mortgage-backed securities (MBS) in the total securitisation volumes improved to 42 per cent for Q3FY21 compared to 33 per cent during the first half of the fiscal year on least disruption in collections and relatively lower spike in delinquencies.

Securitisation of gold loan pools, being backed by a stable security, continued to find investors, forming about 15 per cent of the volumes seen in Q3, it said.

"Due to the uncertainty in the environment caused by the pandemic, we have seen investors increase their focus to the secured asset class where the losses would be restricted due to the presence of adequate collaterals," its assistant vice-president Sachin Joglekar said.