ICRA: Healthy improvement in securitisation volumes for FY22 though still lower than pre-Covid levels

18 Apr 2022 , 10:30 AM

ICRA estimates the securitisation volumes, originated largely by non-banking financial companies (NBFC)s and housing finance companies (HFC)s to have grown by ~43% at Rs. 1.25 lakh crore of assets in FY2022, compared to the lows of ~Rs. 0.87 crore seen in FY2021 due to the onset of the Covid-19 pandemic. The growth in FY2022 was on account of the lower base of FY2021 and quick recovery in economic activities following the second pandemic wave in Q1 and limited disruptions seen during the third wave. The securitisation of retail assets too has been in line with earlier estimate of Rs. 1.1 lakh crore, while additional securitisation of wholesale loans of ~Rs. 15,000 crore was observed in Q4 of the fiscal.

Says Mr. Abhishek Dafria, Vice President and Group Head - Structured Finance Ratings at ICRA, “The last quarter of FY2022 commenced with uncertainty arising from the high Covid infection rates in the country. However, the less severity of the wave led to lower disruption of activities due to which the securitisation volumes in Q4 continued the Q-o-Q upward trajectory. Originators used securitisation as a means to fund higher disbursement targets in the quarter and investors also drew comfort from stable collection efficiencies seen for most part of the year. In Q4, securitisation volumes were ~Rs. 50,000 crore, which is in line pre-Covid quarterly volumes."

"We expect that by FY2024, securitisation volumes can again reach pre-Covid levels of ~Rs. 2 lakh crore, without factoring in at present the market size changes that would be witnessed once merger of a leading HFC goes through,” Mr. Dafaria added.

For FY2022, total securitisation through Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) accounted for ~55% of the total annual volumes, lower than about two-thirds seen over the past few years. This was partly on account of securitisation of wholesale loans in Q4 which were done through Pass Through Certificate (PTC) route.

Within the PTC segment, vehicle loans accounted for one-third volumes, whereas DA was dominated by mortgage backed loans. Microfinance (MFI) loans, which had lost investor preference post onset of pandemic, witnessed significant traction in Q4. MFI loans accounted for ~11% of the total volumes seen in FY2022, with more than half of annual volumes being done in Q4 alone, ICRA added.

Adds Mr. Sachin Joglekar, Assistant Vice President and Sector Head, ICRA, “The year FY2022 has been a step towards normalization of securitisation activity which was otherwise severely hit by the pandemic. During the period,  securitisation picked up sequentially in each quarter, inspite of multiple Covid waves. The increasing number of originators and investors indicate overall broadening of the market. After a gap of almost two years, unsecured MFI loans which are considered riskier, found favour with investors."

"Though share of gold loans has reduced, its volume has remained in line with FY2021. In the next couple of years, we expect that asset class which have a low share currently, like personal loans, two wheeler loans and trade receivable, to pick up pace and help widen the market base,” Sachin added.