Securitisation volume zoomed to Rs 20,000 crore in September 2021, growing ~85% on-year, and marking a clear recovery from the subdued activity seen in the beginning of this fiscal due to the pandemic’s second wave.

Clearly, investors are getting reassured by the return to near normalcy across businesses and improvement in collection ratios in securitised pools and portfolios of originators. The first few months of this fiscal had seen the securitisation market being subdued as the second wave of the pandemic led to localised restrictions and constrained business activity. Securitisations picked up only after fresh information on uptick in collection efficiency started trickling in.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings Ltd, “Market activity typically suffers in times of uncertainty like in the pandemic’s wake. While investors have been wary of taking fresh exposure in such times, originators, too, are not keen to raise too much fresh liquidity as disbursement activity contracts as well. However, the pace of transaction execution in September saw a smart turnaround and has taken the cumulative volumes for the first half of the fiscal to close to Rs 50,000 crore, more than double of last fiscal’s first half.”

Sell-down of loans using the direct assignment (DA) route remained dominant, with as much as 56% of the volume securitised through this method, while the rest was via Pass Through Certificates (PTCs, see chart 2 in annexure).

Mortgage-backed securitisation (MBS) accounted for 45% of volume in the first half of this fiscal (see chart 1 in annexure), cementing its position as a highly reliable and resilient asset class. Private and public sector banks lapped up more than two-thirds of these assets.

Transactions underlying commercial vehicle loans comprised 50% of volume in asset-backed securitisation (ABS).

With ~90 players active in the market between April and September 2021, deal activity was widespread and distributed across asset classes. On the investor side, banks (public, private and foreign) acquired ~75% of the issuances, with mutual funds, non-banking financial companies¹ and high net worth individuals accounting for the rest.

In the second half of the fiscal, however, the Reserve Bank of India’s (RBI’s) latest Master Directions to the industry is expected to play a key role in setting the tone and pace of deals.

Even in September, notwithstanding the hectic market activity, many deals could not be consummated in the month end as the Master Directions were issued towards end of the month and were effective immediately on issuance, which made originators and investors prioritise getting familiarity with the new guidelines. Rules such as those pertaining to calculation of minimum holding period, provision of capital for relatively low-rated securitised paper and minimum requirement of contract level due diligence in direct assignments made some originators and investors cautious at least for the time being.

The regulations are thus expected to shape the quantum of deals, quality of assets and frequency of transactions in the Indian market. Once the various stakeholders get familiar with the contours of the Master Directions, we expect transactions like simple transparent and comparable (STC) transactions to pick up even as originators amend their processes to incorporate the changes, and investors examine the impact on their balance sheets.

Says Rohit Inamdar, Senior Director, CRISIL Ratings Ltd, “The regulations will anchor market activity well. Given the robust pace of vaccination, low incidence of new infections, and expected spike in credit demand owing to the festive season, financers are expected to resort to securitisation as an important avenue to raise funds. That should support securitisation volume in the second half of this fiscal.”

¹ Include housing finance companies and microfinance institutions