Securitisation volume plunged 85% to Rs 6,200 crore in the first quarter of the current fiscal because of slow collections following the lockdown and the loan moratorium offered by lenders in the aftermath of the Covid-19 pandemic.

The decline comes after 15 months of frenetic activity that was majorly driven by non-banking finance companies (NBFCs).

Says Krishnan Sitaraman, Senior Director, CRISIL Ratings, “Deferment of transactions is along expected lines. Limited disbursements in the first quarter reduced the immediate liquidity needs of some larger, well-capitalised NBFCs. On the demand side, a vast majority of investors are waiting for clarity on economic activity and borrower cash flows and the consequent impact on collections stability.”

Asset-backed securities (ABS) remained the dominant segment comprising 74% of the overall securitised volume in the quarter (58% in Q1 of fiscal 2020) (see Chart 1 in Annexure). Mortgage-backed securities (MBS) constituted the balance volume.

Direct assignment (DA) route, being the most-preferred for securitisation of MBS deals, accounted for nearly two-thirds of all deals. However, the partial credit guarantee scheme for direct assignment transactions announced by the government did not draw much traction in the just concluded quarter. About 34% of the market adopted the pass-through certificate (PTC) route of securitisation (see Chart 2 in Annexure).

However, in stark contrast with the overall market performance, transactions backed by gold-loan receivables bucked the trend. They comprised nearly half of the total securitisation transactions in the first quarter. That compares with 20%, 7%, and 2% in the comparable periods of fiscals 2020, 2019 and 2018, respectively. The number of gold loan originators, too, has risen from two in first three months of fiscal 2020 to five so far this fiscal.

The increase in gold loan-backed securitisation is because of the relatively short tenure of the loans, their strong performance over the past few years, and secured nature of the asset class in a rising gold price environment.

Barring this asset class, the number of originators were limited in the first quarter. Only marquee players were able to draw some interest, especially from private investors such as insurers and new private banks. Mutual funds have largely stayed away.

A return to pre-lockdown volume is likely only gradually. With economic activity gathering pace in June, collections have started to improve, though they are still a long way from pre-lockdown levels. Securitisation volumes also picked up with 67% of the quarterly volume coming in the month.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “There is no doubt that securitisation will remain an important tool for NBFCs to mobilise liquidity. With the phased opening-up of the economy, we expect the current quarter to see more transactions than the first quarter. Overall pace of recovery in transactions will be a function of improvement in economic activity and collection efficiency trends in the retail segment over the next few months.”