Mumbai: Funds raised through the securitisation route have seen an unprecedented rise in the last one year as non-banking finance companies (NBFCs) and housing finance companies (HFCs) facing a shortage of funds since the IL&FS crisis in September 2018 have resorted significantly to this route for raising funds.
The HFCs and NBFCs have raised as much as Rs 2.36 lakh crore over the last one year (October 2018 to September 2019) through sell down of their loan assets under either the securitisation or direct assignment route. This unprecedented increase in sell down volumes reflects the choking up of traditional borrowing channels such as loans, bonds and commercial paper issuances. As per Icra, the domestic securitisation market is expected to remain robust and FY2020 is poised to be another good year in terms of issuance volumes.
Securitisation involves creating a financial instrument by pooling together loans such as home mortgages, automobile loans or credit card debt obligations and future receivable and then selling them to investors as securities.
Abhishek Dafria, Vice-President and Head of Structured Finance at Icra, “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 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.”
“Growth rode on both, established and new originators entering the market to augment their resources profile in a challenging financing environment. The number of active originators was close to 100 in the first half of this fiscal, compared with 70 in the corresponding period of last fiscal. Overall, growth was broad-based with both mortgage backed securitisation (MBS) and asset-backed securitisation (ABS) logging healthy uptick in volume,” said Rohit Inamdar, Senior Director at Crisil.
A bigger boost, however, is expected from regulatory interventions, say analysts. Among recent regulatory interventions, the Reserve Bank has relaxed the guidelines on minimum holding period in securitisation transactions backed by long-tenure loans till December 31, 2019. This would ensure increased supply of eligible assets available for MBS transactions.
Krishnan Sitaraman, Senior Director, Crisil Ratings said, “The partial credit guarantee scheme launched by the Ministry of Finance is expected to further lift demand for securitisation from public sector banks. Many of these banks have already sanctioned loans under the scheme and disbursements are expected over the next few months.”
Securitisation of gold loan receivables, personal loan receivables, two-wheeler loan receivables and lease rental receivables are now mainstream.