Photographer: Brent Lewin/Bloomberg

Securitisation Volumes Jump In October Amid NBFC Strains

The volume of securitisation transactions continued to rise in October, as non-bank lenders sold loan portfolios to generate liquidity.

Securitisation volumes rose to Rs. 18,000 crore in October 2018, with non-banking financial companies and housing finance companies raising funds by selling their pooled retail portfolios to banks, said rating agency ICRA in a release on Tuesday. These funds helped NBFCs meet a portion of the Rs. 78,000 crore in commercial paper that was due for repayment in October 2018.

Both public and private sector banks participated in these securitisation deals. However, with NBFCs in a rush to sell loan portfolios, the pricing of such deals has moved in favor of banks.

From being a seller’s market earlier to a buyer’s market now, market dynamics have changed completely causing yields to spike by around 100- 200 basis points in October 2018 compared to the first half of the financial year.
Vibhor Mittal, Group Head, Structured Finance, ICRA
Securitisation Volumes Jump In October Amid NBFC Strains

Several funding avenues have dried up for NBFCs and HFCs on account of tighter liquidity and higher risk aversion. However, the benefit of securitisation transactions is that investors are not exposed to entity level credit risk, instead, taking an exposure in the underlying pool of retail borrowers, noted the report.

Securitisation in India can be segregated into rated Pass Through Certificate transactions and unrated Direct Assignment transactions. Direct assignment transactions, which involve a bilateral assignment of loans from one entity to the other, have continued to remain a more prevalent in the current environment.

Though liquidity appears to be easing, the momentum in the securitisation market is likely to remain strong in this quarter as there are significant redemptions due in November and December 2018 as well, said Mittal.

So far this year, Rs 83,800 crore in securitisation deals have been reported.