NBFC-MFIs raised around ₹26,000 crore through securitisation in FY19, up about 2.6 times from ₹9,700 crore in FY18, on back of a tough liquidity environment, according to rating agency ICRA.
The NBFC-MFIs significantly increased their reliance on the securitisation route to meet their growth targets in FY19.
Vibhor Mittal, Group Head – Structured Finance Ratings at ICRA, “Securitisation has always been an important funding tool for NBFC-MFIs, but the dependence was particularly high during the second half of fiscal 2019.”
He said that in FY18 and H1 FY19, securitisation contributed to only 18 - 20% of the overall disbursements. However, this number leapfrogged to 37% and estimated 50% in Q3 FY19 and Q4 FY19 respectively.
In other words, almost half of incremental disbursements in Q4 FY19 is estimated to have been met through the securitisation route.
“Investors were also comfortable buying retail loan portfolios originated by these entities as opposed to taking direct on-balance sheet credit exposure, especially for small and medium sized entities,” Mittal added.
The securitisation market in India can be segregated into two types of transactions – rated Pass Through Certificate (PTC) transactions, and unrated Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another).
The PTC route has historically been the preferred route for microfinance asset class due to absence of any credit enhancement in DA transactions.
However, recent trends indicate sharp increase in DA transactions. As per ICRA estimates, DA transaction volume undertaken by NBFC-MFIs were around ₹ 13,500 crore for FY19 as against only ₹4,000 crore and ₹3,000 crore in FY18 and FY17 respectively.
“The increase in direct assignment transactions for micro loan asset category validates that investors are comfortable with the asset quality of the underlying loans, and even willing to take credit exposure to this asset class without any credit enhancement. The improved investor confidence is noteworthy, especially factoring the woes faced by the sector post the demonetisation event,” Mittal added.