Securitisation Volume Growth Slows To 8% In December Quarter: Report

Securitisation volume growth slowed to around 8 per cent on year to Rs 29,000 crore in the quarter ended December 31, 2021, on higher risk aversion amid the third wave of COVID-19, says a report.

The cumulative value of deals executed in the first nine months of this fiscal stood at approximately Rs 80,000 crore, or close to 65 per cent higher on-year basis, Crisil Ratings said in a report on Monday.

"Growth in the third quarter slowed to 8 per cent as a result of a rise in risk aversion. The uncertainty around Covid-19's third wave (including the omicron variant) resulted in many deals under active negotiation remaining unexecuted towards the end of the quarter," the agency said.

Its Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said while securitisation volume has continued to grow this fiscal, caution has once again crept in among the investor community, slowing the pace of growth.

In contrast to the super-normal growth driven by the low-base effect seen in the previous quarters this fiscal, volume in the third quarter rose only 8 per cent on-year, he said.

Prominent investing segments such as public and private sector banks preferred the relatively more resilient mortgage asset class. This is reflected in mortgage-backed securitisation (MBS) assets comprising 43 per cent of the overall quarterly volume, the report said.

In the asset-backed securitisation (ABS) category, commercial vehicle (CV)-backed loans were dominant, buoyed by past trends indicating a lower impact from short-term disruptions caused by restrictions on movement of goods and people.

Transactions with underlying CV loans comprised 39 per cent of the overall quarterly volume, the agency said.

The report said at 59 per cent share, the direct assignment (DA) route continued to dominate the market, with the pass through certificate (PTC) route making up the rest.

The number of entities using the DA route has declined from 65 in the first nine months of fiscal 2021 to 53 in the current period. However, those using the PTC route has remained stable at 63, it said.

"As the impact of the third wave of the pandemic on the economy wanes and disbursement activity normalises, growth in loan book should become a key priority for banks, providing a boost to the DA segment," the agency said.

It said securitisation has been a major tool of fund mobilization for non-banking financial companies (NBFCs) since the credit cliff event of September 2018.

Prior to the event, that is, in fiscal 2018, securitisation flows accounted for 14 per cent of the annual disbursements of the top 10 NBFCs (including MFIs), which used securitisation.

That rose to 22 per cent and 33 per cent in fiscals 2019 and 2020, respectively.

However, the pandemic brought about a benign regulatory environment in fiscal 2021, which provided alternatives to funding access for NBFCs, reducing the dependence of many entities in the securitization segment.

Accordingly, the proportion of securitization flows for the entities fell back to around 23 per cent of the annual disbursement, it said.

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