Securitisation volumes likely to bounce back in FY22: Icra

After witnessing a sharp contraction in the current fiscal so far, the domestic securitisation volumes of retail pools originated by non-banking financial companies (NBFC) and housing finance companies (HFC)) are likely to witness a healthy bounce back in FY2022, says a report.

The rise in volumes for the remainder of the current fiscal and for FY22 would be driven by growing investor confidence in asset quality due to improving collections; higher funding requirement of originators on account of increasing disbursements and improving business activities post the end of lockdown and moratorium period, rating agency Icra Ratings said in a report.

The agency's vice president and group head (structured finance ratings) Abhishek Dafria said the collections across all asset classes have bounced back sharply since the dip seen in April 2020 following the nationwide lockdown. The resumption of businesses, as the lockdown has gradually eased, has supported the ability of the retail borrowers to meet their EMI payments, he said.

“This has reduced investor wariness towards purchase of retail pools that has led to a healthy momentum in fresh securitisation from September 2020 onwards,” Dafria said in the report. The financing requirements for NBFCs and HFCs are also expected to increase in FY2022 as disbursements would be closer to the pre-Covid levels which in turn would support the securitisation market as a tool to diversify funding sources, he said.

Appetite for securitisation of unsecured loans though still remains relatively weak and would only improve if the collection efficiency for such asset classes continues to increase in a sustainable manner, Dafria added. Securitisation volumes witnessed a sharp contraction in the first quarter of FY2021 following the nationwide lockdown and the moratorium provided to borrowers. Investors were uncertain on the asset quality due to irregularity of the borrowers' income generation capability and cash flow led by the pandemic and moratorium, the report said.

The funding requirements of NBFCs and HFCs also shrunk due to lack of disbursements. However, healthy uptick in volumes was seen in Q2 FY2021 with the market doubling as compared to the first quarter volumes. As per our estimates, about 45 originators went through securitisation in Q2 FY2021, compared to 18 in Q1 FY2021. The overall volumes though still remain significantly lower than the previous fiscal, it said.

The agency said the credit quality of the rated pass-through certificates (PTCs) should remain 'stable' during FY2022. “Even though the collections may not have reached the pre-COVID levels, the credit enhancement available in the transactions has further built-up owing to the amortisation of the pools supporting their credit quality,” it said.

The rating agency has downgraded ratings of 10 PTCs in FY2021 so far compared to 31 upgrades. The rating downgrades have occurred largely on account of – absence of moratorium provided by the investor on the PTC payouts leading to high utilisation of credit enhancement during the period of April to August 2020 and originator-specific concerns such that the credit quality of the originator itself has significantly weakened, it said.