Securitisation Transactions Fall 85% In Q1 On Covid-19 Disruptions: ICRA

Securitisation transactions tumbled in the quarter ended June as investors turned wary about borrowers' ability to repay loans amid the disruptions caused by the pandemic.

The volume of securitisation deals—where a pool of loans is bundled, rated and sold to investors—fell 85% from the year ago to Rs 7,500 crore in the April-June period, according to an Aug. 4 report by ICRA Ratings Ltd. That compares with a 55% year-on-year increase in the three months ended June 2019.

For the full fiscal ended March 2020, such transactions remained flat at Rs 1.96 lakh crore.

The Covid-19 pandemic and the ensuing nationwide lockdown has impacted the income generation capability of a large number of borrowers, according to ICRA. The outbreak of the deadly pathogen forced people to stay indoors, shuttered businesses and left millions jobless, pushing India's economy toward a full-year contraction in more than four decades. To provide relief to borrowers, the Reserve Bank of India allowed lenders to offer a moratorium on loan repayments for six months.

“The RBI's loan moratorium policy, though provided relief to retail borrowers, was detrimental to securitisation market as investors stayed away from pools with irregular cash flows in the initial months,” ICRA Ratings said.

While overall securitisation transactions has fallen during the quarter, Abhishek Dafria, vice president and head of structured finance ratings at ICRA Ratings, said more than two-thirds of such deals were completed in June alone.

“We expect the overall volumes to see further increase in the coming quarters, supported by an improvement in collections across asset classes that would restore investor confidence,” he said. “The traction will also be supported by non-banking financial companies that have already recommenced disbursements, albeit lower amounts at present, and will utilise securitisation of their pooled assets as a funding tool.”

Still, overall securitisation transactions will be lower at around Rs 1.3 lakh crore in the fiscal ending March 2021 compared with Rs 1.96 lakh crore a year ago, Dafria said.

Around 31% of securitisation transactions during the quarter were related to commercial vehicle loan tranches. The share of mortgage-backed deals shrunk to 28% from 48% in the year-ago period.

Gold loan securitisation transactions, however, increased to 32% of overall deals during the first quarter from 13% a year ago.

“Investor appetite for gold loan securitisation was supported by secured nature of the asset class, which is also highly liquid security, better yields and stable portfolio performance,” ICRA Ratings said. “The rise in gold prices in the past quarter also improved the loan-to-value ratio from the lenders' perspective, reducing chances of any loss.”