Securitisation transactions plunged 80% to just over Rs 20,000 crore by value in the first half of the current fiscal, following the Covid-19 pandemic and the moratorium on loan repayments allowed thereafter.

But September saw a rebound in transactions to ~Rs 10,000 crore as economic activity began clawing back.

Overall volume, however, continues to be well below the levels seen in the past few years, when securitisation had become one of the preferred fund-raising tool for non-banking financial companies (NBFCs)¹. Volume in the first half of fiscal 2018 was ~Rs 37,000 crore, which surged to ~Rs 68,000 crore in the same period of fiscal 2019, and onwards to ~Rs 96,000 crore in the first half of fiscal 2020.

NBFCs have had to increasingly take recourse to securitisation to raise funds after the default by a large financial institution in September 2018. Securitisation proceeds accounted for 26% of the disbursements done by the top 20 non-banks (13 NBFCs and 7 microfinance institutions) in fiscal 2020. In fiscals 2019 and 2018, the numbers were 18% and 12%, respectively.

Says Krishnan Sitaraman, Senior Director, CRISIL Ratings, “Disbursements by non-banks had declined sharply in the first half as business activity hard-braked. That also reduced the need for non-banks to access the securitisation market to churn assets. Investors also preferred to wait on the sidelines, assessing the impact of moratorium on collection efficiency and credit behaviour, and awaiting clarity on improvement in borrower cash flows and economic activity. Further, in the interim, NBFCs were able to secure funds through alternate means such as targeted long-term repo operations and partial credit guarantee scheme.”

Asset-backed securities comprised 70% of the overall securitised volume in the first half of this fiscal, which marked a 1000 basis points growth on-year (see Chart 1 in annexure). The direct assignment (DA) route, being the most-preferred mode for mortgage-backed securities, accounted for nearly two-thirds of all deals (see Chart 2 in annexure). In terms of asset classes, commercial vehicle and gold loans comprised more than half of the transaction volume in the first half of this fiscal.

Direct assignment transactions supported by partial credit guarantee of the government, saw renewed interest from banks in the past few months, accounting for nearly 12% of volumes.

The number of active originators have increased in the past three months as portfolios under moratorium fell. Consequently, interest of investors, too, picked up, as more data became available on borrower behaviour during the moratorium. Investors preferred to acquire loans given to borrowers who had not opted to avail of the moratorium from June to August.

While private banks and insurers remained the main investors, public sector banks and NBFCs also put money into some securitised pools. However, mutual funds, major investors in recent years, have been largely inactive this fiscal.

With containment measures beginning to be relaxed from June, economic activity is picking up and NBFCs have begun disbursement of loans – but on a limited scale – amid operational constraints.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “As more data becomes available on borrower behaviour at portfolio and pool levels, and if they point to predictable, and pre-pandemic-level, collection efficiencies, investor interest will increase. The contours of the one-time restructuring likely for borrowers will determine the extent of the securitisation recovery in the near term.”

The spread, intensity and duration of the pandemic and further lockdowns will also be monitorables.

¹ NBFCs includes housing finance companies and micro-finance institutions