The rating firm expects overall securitisation volumes in the first half of FY21 to be hit by the Covid-19 pandemic.

India’s securitisation market is expected to remain tepid in H1FY21 due to the uncertainties emerging from Covid and economic slowdown. Rating agency Icra said on Tuesday that the share of mortgages in the loan pools securitised dropped to 31% in FY20 from 48% in FY19 as some large housing finance companies (HFCs) with a significant presence in the market found few takers for their loans. The rating firm expects overall securitisation volumes in the first half of FY21 to be hit by the Covid-19 pandemic.

“The drop was seen largely because a couple of large HFCs who were very active in the market were not finding investors because their home-loan credit profile had sharply deteriorated,” said Abhishek Dafria, vice-president and sector head — structured finance, Icra. The asset classes which saw an uptick in their share of the securitisation pie were vehicle loans (29% in FY20 against 24% in FY19), small business loans (7% against 2%), tractor loans (4% against 1%) and gold loans (6% against under 1%).

Due to the ongoing nationwide lockdown that has severely impacted the income generation of a large number of borrowers, non-banking financial companies (NBFCs) are likely to witness a spike in delinquencies across all asset classes, especially loans disbursed by micro finance institutions (MFIs), which could result in challenges in sell-down of their portfolio. Once the lockdowneases and the economy starts to gradually recover, the market is likely to recover and securitisation would again emerge as an important source of funding for NBFCs and HFCs, the rating firm said.

The total securitisation market was around Rs 2 lakh crore in FY20, almost the same as in the previous year. The volumes on a quarterly basis were more spread out during FY20 compared to FY19. In the last quarter of FY20, however, the volumes were down to 20% of the total annual volumes compared to 28% in FY19, due to Covid.

In terms of the split between priority sector lending (PSL) and non-PSL transactions, there was a sustained increase in interest towards non-PSL assets in FY20, with the share of non-PSL assets increasing to around 43% from around 38% in the previous year. Analysts at Icra observed that this was a healthy trend because it signalled an expansion in the breadth of the market to include investors who are not necessarily looking to meet PSL targets.