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NBFCs: NBFC securitisation of loans picks up as other sources of funds dry: ICRA

Non banking finance companies (NBFCs) have stepped up securitisation of their loan portfolios in the last one year, raising as much as Rs 2.36 lakh crore since the IL&FS crisis in September 2018, rating agency ICRA said in a report. The funds raised were much needed in light of the liquidity squeeze that these companies faced from other sources like banks and bond markets.

NBFCs and housing finance companies (HFCs) together raised Rs 2.36 lakh crore between October 2018 and September 2019 by selling down their loans in the open market through securitisation or bilateral direct assignments (DAs). ICRA expects securitisation volumes to touch an all-time high in fiscal year, ended March 2020 with direct assignments remaining at the forefront.

“NBFCs and HFCs continue to rely heavily on securitisation as a tool for raising funds, manage liquidity and to correct any ALM mismatch. In addition to this, the partial credit guarantee scheme (PCG) of the Government of India (GoI) will also add bulk to the overall market volumes. With the public sector banks directed to disburse funding of Rs 1 lakh crore under the PCG scheme by February 2020, we believe that the size of the securitisation market would be at an all-time high, in excess of Rs. 2 lakh crore for FY2020,” said Abhishek Dafria, vice president and head – structured finance ratings at ICRA.

ICRA estimates that pass through certificate (PTC) volumes were around Rs 92,000 crore in the past one year, while direct assignment deals were much higher at Rs 1.45 lakh crore in the same period. Direct assignment volumes however declined from Rs 87,450 crore in the second half of fiscal 2019 to Rs 58,400 crore in the first half of fiscal 2020 mainly due to weakened credit profile of a few originators that were traditionally large and active.

Priority sector lending driven transactions as a percentage of PTCs have also reduced to 52 per cent in the first half of fiscal 2020 compared to 88 per cent in fiscal 2017 as new investors like foreign portfolio institutions, high net worth individuals and insurance companies who do not have any specific need to buy priority sector assets. As a result, there has also been an increase in the proportion of non-PSL asset segments such as two wheeler loans, small business loans and gold loans amongst others, being securitised.

Within PTCs, while commercial vehicle loans remained the most sought after, small business loans have seen the sharpest pickup making up 11 per cent of the PTC volumes in H1 FY2020. Within DA’s, gold loan is an asset class that has gained greater acceptance amongst the purchasing banks and accounted for 10 per cent of the D.A volume for the first half of fiscal 2020.




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