Securitisation volume growth slows to 8% in third quarter in India
Securitisation volume for the third quarter grew ~8% on year to ~Rs 29,000 crore, lifting the cumulative value of deals executed in the first nine months of this fiscal to ~Rs 80,000 crore, or ~65% higher on-year, according to a report by rating agency Crisil.
Growth in the third quarter slowed to 8% as a result of a rise in risk aversion. The uncertainty around Covid-19’s third wave (including the omicron variant) resulted in many deals under active negotiation remaining unexecuted towards the end of the quarter. While securitisation volume has continued to grow this fiscal, caution has once again crept in among the investor community, slowing the pace of growth.
In contrast to the super-normal growth driven by the low-base effect seen in the previous quarters this fiscal, volume in the third quarter rose only 8% on-year, says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings
Prominent investing segments such as public and private sector banks preferred the relatively more resilient mortgage asset class. This is reflected in mortgage-backed securitisation (MBS) assets comprising 43% of the overall quarterly volume.
In the asset-backed securitisation (ABS) category, commercial vehicle (CV)-backed loans were dominant, buoyed by past trends indicating a lower impact from short-term disruptions caused by restrictions on movement of goods and people. Transactions with underlying CV loans comprised 39% of the overall quarterly volume.
The proportion of other asset classes such as two-wheeler (1%) and gold (11%) loans declined somewhat while that of microfinance loans remained at 9% of funds mobilised in the quarter.
ABS vs MBS preference
Despite the rise in securitised volume this fiscal, the number of entities in the ABS segment remained almost the same as that in the year-ago period. The MBS segment, though, saw some participants drop out.
The fall in ABS entities could be attributed to the absence of many microfinance and unsecured loan providers in the securitisation space.
Low disbursements, coupled with asset performance concerns during the moratorium phase and subsequent waves of the virus could be underlying factors.
Sell-down using DA vs PTC
At 59% share, the direct assignment (DA) route continued to dominate the market, with the pass through certificate (PTC) route making up the rest. While ~30 investors acquired loan assets using the DA route, more than 40 investors invested in PTCs. Investor segments such as mutual funds, insurance companies and high net-worth individuals (HNIs), have had limited presence in the current fiscal so far.
The number of entities using DA route has declined from 65 in the first nine months of fiscal 2021 to 53 in the current period. However, those using PTC route has remained stable at 63.
As the impact of the third wave of the pandemic on the economy wanes and disbursement activity normalises, growth in loan book should become a key priority for banks, providing a boost to the DA segment.
Securitisation flows
Securitisation has been a major tool of fund mobilisation for non-banking financial companies (NBFCs) since the credit cliff event of September 2018. Prior to the event, i.e., in fiscal 2018, securitisation flows accounted for 14% of the annual disbursements (see chart 5) of the top 10 NBFCs1 (including microfinance institutions, or MFIs), which used securitisation. That rose to 22% and 33% in fiscals 2019 and 2020, respectively. However, the pandemic brought about a benign regulatory environment in fiscal 2021, which provided alternatives to funding access for NBFCs, reducing the dependence of many entities in the securitisation segment. Accordingly, the proportion of securitisation flows for the entities fell back to ~23% of the annual disbursement.
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