ICRA estimates the securitisation volumes, originated largely by non-banking financial companies (NBFC)s and housing finance companies (HFC)s, to be about Rs. 33,000 crore in Q1 FY2023. This reflects a 1.9x increase when compared to Rs. 17,200 crore of securitised assets in Q1 FY2022 and a 4.4x increase compared to Rs. 7,500 crore in Q1 FY2021. The key reason for healthy volumes in Q1 of the current year is the overall macroeconomic stability with no major disruptions which resulted in robust credit growth for NBFCs and HFCs on a YoY basis. As opposed to this, in the previous two years, the first quarter in each of the year had been hit by the Covid-19 pandemic resulting in lockdowns and reduced credit demand due to slowdown in economic activities.
Says Mr. Abhishek Dafria, Vice President and Group He-d - Structured Finance Ratings at ICRA, "The securitisation volumes witnessed in Q1 FY2023 were almost double the volumes seen in Q1FY2022. With the growth in credit demand, the disbursements picked up for NBFCs and HFCs in Q4 FY2022 and have remained buoyant in Q1 FY2023 thereby resulting in higher funding requirements which have been partly met through the securitisation of their retail loans. Securitisation is a key tool for these companies which will help them diversify the means of funding and broaden their investor base. Furthermore, stable collections across all asset classes have led to higher investors' confidence and brought them back to the securitisation market. Collection efficiencies have remained healthy over the past 5-6 months with ICRA-rated pools showing 97-101% collection in April 2022, a month when collection efforts are otherwise typically low. If there are no pandemic related disruptions, we expect securitisation volume could cross Rs. 1.5 lakh crore in FY2023 as against Rs. 1.3 lakh crore in FY2022."
Securitisation in India is carried out either through Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) or through the pass-through certificate (PTC) route (instruments issued by bankruptcy remote trusts). Traditionally DAs have accounted for ~60% share and balance 40% by PTCs. For Q1FY2023, the share of DA and PTC was in line with this past trend. Securitisation of mortgage-backed loans dominated with ~46 share in total securitisation volumes followed by vehicle loan segment accounting for ~26% and microfinance at ~11%. The number of originators who securitised their assets in Q1 FY2023 increased sharply to 70 from 46 in Q1 FY2022.
Adds Mr. Sachin Joglekar, Assistant Vice President and Sector Head, ICRA, "During periods of uncertainty, preference towards PTCs increases as PTC structures have credit enhancements which help curtail losses to investors. However, ~60% share of securitisation was through DA in Q1 FY2023, which is in line with the historical trends, indicating normalisation of overall macroeconomic perception. Another positive for the industry is broadening of originator base, with ~70 lenders raising funds through securitisation in Q1 FY2023, higher than 46 in Q1 FY2022. Though rate hikes by the Reserve Bank of India had some impact in May when originators and investors postponed some ongoing transactions, securitisation activity picked up in June as more clarity emerged."