NBFCs, HFCs YoY securitisation volumes likely to have surged in Q1FY22

Securitisation volumes by Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) are expected to have surged 2x and 3x on YoY (year-on-year) basis in Q1 FY22.

Accordingly, securitisation volumes are expected to have risen to Rs 17,500 crore of its loan assets compared to Rs 7,500 crore in Q1 FY21.

In a report ICRA cited that due to the Covid-19 pandemic and resultant nationwide lockdown in March 2020, securitisation volumes had fallen significantly in Q1 FY21.

“The country witnessed a much more severe second wave of the pandemic around the same time this fiscal which had resulted in another round of lockdowns,” the report said.

“Inspite of this the securitisation market clocked higher volumes.”

As per rating agency’s estimate, the securitisation volumes for FY22 could be more than Rs 1.2 lakh crore, of which majority would be in H2FY22 “if there is no resurgence of Covid-19 infections in the country”.

According to Abhishek Dafria, Vice-President and Group Head — Structured Finance Ratings at ICRA, “Despite the onset of second wave of the pandemic in April 2021, securitisation volumes saw a robust YoY growth in Q1 FY2022. This was because the lockdowns during the current fiscal were localised and less stringent compared to the nationwide lockdown last year.”

“Further there was gradual ease in lockdowns in June across most geographies and gradual improvement in collection efficiencies of NBFCs, thereby giving investors necessary comfort to participate in securitisation. To add to this, investors also applied stringent pool selection criteria whereby borrowers who had availed moratorium or whose accounts were restructured were filtered out.”

Another factor, Dafria pointed out which supported the volumes was that unlike first quarter of 2020, when microfinance sector was nearly absent from the securitisation market, this sector has been able to restrict the decline in collections and thus been able to find investor interest in securitisation of its assets.

Traditionally, securitisation through Direct Assignment (DA) transactions has accounted for nearly two-third of total volumes.

The balance one-third share is accounted by Pass Through Certificate (PTC) transactions.