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NBFCs, HFCs securitisation volumes almost doubled to Rs 33,000 crore in April-June: Report

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Securitisation volumes originated by Non-Banking Financial Companies (NBFC)s and Housing Finance Companies (HFC)s have almost doubled to around Rs 33,000 crore in the first quarter of the current financial year, a report said on Monday. The volume of such transactions is expected to cross Rs 1.5 lakh crore in FY23, Icra Ratings said in a report.

The growth in volumes reflects a 1.9 times increase when compared to Rs 17,200 crore of securitised assets in Q1 FY22 and a 4.4 times increase compared to Rs 7,500 crore in Q1 FY2021, the report said.

“The securitisation volumes witnessed in Q1 FY23 were almost double the volumes seen in Q1 FY2022. With the growth in credit demand, the disbursements picked up for NBFCs and HFCs in Q4 FY22 and have remained buoyant in Q1 FY23, thereby resulting in higher funding requirements which have been partly met through the securitisation of their retail loans,” the agency’s Vice President and Group Head (structured finance ratings) Abhishek Dafria said.

Securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or Collateralised Debt Obligations (CDOs).

The securitisation market is primarily intended to redistribute the credit risk away from the originators to a wide spectrum of investors who can bear the risk, thus aiding financial stability and providing an additional source of funding. Dafria said securitisation is a key tool for NBFCs and HFCs, 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,” he said.

Collection efficiencies have remained healthy over the past 5-6 months with the agency’s rated pools showing 97-101 per cent collection in April 2022, a month when collection efforts are otherwise typically low, Dafria said.

“If there are no pandemic related disruptions, we expect securitisation volume could cross Rs 1.5 lakh crore in FY23 as against Rs 1.3 lakh crore in FY22,” he said.

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 close to 60 per cent share and the balance 40 per cent by PTCs. For Q1 FY23, the share of DA and PTC was in line with this past trend.

“Securitisation of mortgage-backed loans dominated with around 46 per cent share in total securitisation volumes followed by vehicle loan segment accounting for approximately 26 per cent and microfinance at about 11 per cent,” the report said. The number of originators who securitised their assets in Q1 FY23 increased sharply to 70 from 46 in Q1 FY22, it added.



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