Priority Sector Lending demand as well as securitisation volumes are expected to go back to the pre-Covid levels in FY23 across asset classes, although with tighter eligibility criteria for unsecured loans, as per an India Ratings and Research (Ind-Ra) report,
According to the report, the measures announced in the recent budget to support micro, small, and medium enterprises, increase infra spending, and boost digitisation in the rural sector could lead to improved collections and asset performance among securitised assets.
Ind-Ra expects co-lending arrangements, along with the traditional models such as securitisation and loan transfers, to stay an important liquidity avenue for non-bank lenders in FY23, in a possibly increasing interest rate scenario.
“Securitisation provides a further security cover to investors in the form of credit enhancement (CE) which supports such transactions in times of increased stress,” it said.
Besides, the agency expects the liquidity of residential mortgage loans to improve due to a favourable revision in ‘RMBS’ requirements such as the minimum holding period, minimum retention requirements, and CE reset conditions.
“Also, the market has already witnessed a couple of simple, transparent, and comparable framework-compliant transactions in FY22.”
According to the agency, a continued improvement in the performance of securitisation transactions after the huge impact of second Covid wave has been witnessed.
“While the delinquencies remain higher than pre-pandemic trends, the overdue loans in softer buckets have restarted to perform. Most asset classes, except unsecured consumer loans, have their delinquencies contained in the agency-rated transactions.
“Also, the agency believes that the third Covid wave may not have a significant impact, given the nature of infection, so far, has largely not been life-threatening. However, the performance of securitisation transactions may not indicate the market level default rate as these loans are cherry-picked by investors.”