Q4 of fiscal 2021 witnessed securitisation transactions amounting to ~Rs. 40 thousand crores to become the highest grossing quarter for the fiscal (see chart 1 in annexure). Despite this last-quarter surge, securitisation volumes closed below the psychological Rs 1 lakh crore mark last fiscal, down from ~Rs. 1.9 lakh crore clocked in each of the previous two fiscals.

The securitisation market had started to open up last fiscal as containment restrictions were withdrawn, commercial activity resumed and the moratorium period announced by Reserve Bank of India drew to a close in August 2020. As a result, deals comprising nearly three-fourths of annual volume were executed in the second half of the fiscal. Further, as business activity picked up and borrowers resumed repayments, investors drew comfort from rising collection efficiency in securitised pools, which CRISIL Ratings had noted in its September 2020¹ and December 2020² press releases. Additionally, non-banking financial companies (NBFCs)³ resumed disbursements and raised funds through securitisation to fund incremental needs.

Over 100 entities securitised assets during the fiscal, with more than 15 entering the market for the first time. Private and public sector banks invested in more than two-thirds of securitisation issuances, while foreign banks invested in ~10%. Mutual funds, insurance companies, NBFCs, and high-networth individuals (HNIs) accounted for bulk of the rest.

Asset-backed securitisation (ABS) deals accounted for nearly two-thirds of securitised volumes (see chart 2 in annexure). Mortgage-backed securitisation (MBS) issuances, with underlying home loans and loans against property, comprised the remaining, with investors drawing comfort from stable collection efficiency in MBS pools in the post-moratorium period.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings Ltd, “In the Indian milieu, mortgage loans have been appreciated as a safe asset class for investors, given low delinquencies and minimal losses historically. Bearing testimony to this, mortgage loan collection efficiencies recovered faster from the pandemic-driven slowdown than other asset classes last fiscal.”

Covered bonds, a structured finance product, involving primary recourse to the issuer with additional recourse to a pool of assets segregated from the issuer’s balance sheet, drew investor attention, and saw volumes build up to ~Rs. 2,000 crores. Some of these issuances were in the form of market-linked debentures, an innovation that provided flexibility to link instrument yield to an external benchmark. Many of these issuances were invested in by HNIs and family wealth offices. Relatively newer asset classes, such as car-lease and supply-chain receivables, were also seen getting securitised last fiscal.

Direct assignment (DA) transactions dominated issuance, with as much as 59% of the volume securitised through this route. Within DAs, issuance supported by the government-sponsored Partial Credit Guarantee Scheme accounted for 5% of transactions. Securitisation through the pass-through certificate (PTC) route comprised the remaining 41% (see chart 3 in annexure).

Looking ahead, securitisation volumes in the near term could be impacted by rising Covid-19 cases and the resultant restrictions being imposed in a number of states. Many NBFCs may be compelled to refocus their energies on collections, and fresh disbursements could take a back seat. Containment measures, including a temporary suspension of movement (local and regional) and business activities, could inhibit borrower cash flows. If these impact collection efficiencies, they may again deflate returning investor confidence and inhibit securitisation volumes in the near term.

Says Rohit Inamdar, Senior Director, CRISIL Ratings Ltd, “The better-than-anticipated rise in volumes in the second half and specifically final quarter of last fiscal points to the resilience of this segment to interruptions brought on by the Covid-19 pandemic in the broader economy. Additionally, the track record of originators, improving collection ratios, and stable credit behaviour of borrowers may insulate the segment from much disruption in the current fiscal if the spread, intensity and duration of the pandemic and accompanying containment measures are not significant.”

¹ https://crisil.com/en/home/newsroom/press-releases/2020/09/securitised-pool-collections-rebound-from-lows-of-april.html
² https://crisil.com/en/home/newsroom/press-releases/2020/12/nbfcs-break-a-sweat-securitised-pool-collections-improve-to-almost-pre-pandemic-levels-after-moratorium.html
³ NBFCs include housing finance companies and microfinance institutions