Omicron poses severe threat to securitisation volumes in H2: ICRA

The spread of the virus may trigger state and national lockdowns, which is likely to have a bearing on collections of non-bank lenders, it said.

The Omicron variant of Covid-19 poses severe threat to securitisation volumes of non-banking finance companies (NBFCs) and housing finance companies (HFCs) in October-March (H2FY22), said rating agency ICRA. The spread of the virus may trigger state and national lockdowns, which is likely to have a bearing on collections of non-bank lenders, it said.

ICRA had earlier estimated securitisation volumes, including direct assignments, to reach Rs 1.2 lakh crore in the current fiscal (FY22), with about 60-70% of the volumes generating in H2FY22. Securitisation volumes stood at Rs 42,800 crore in April-September (H1FY22).

If the Omicron variant disrupts business activities and results in even temporary lockdowns, securitisation volumes could be severely affected for the remaining part of the fiscal, as investors may prefer to wait for the threat to subside, and NBFCs and HFCs may again witness lower disbursements like previous lockdowns, ICRA said. It added that securitisation volumes in FY23 (2022-23) could also be affected by lower disbursements as the availability of retail loans for securitisation would decline.

ICRA noted that collections have bounced back quicker in the secured asset classes, compared with the unsecured asset classes. During the first half of FY22, almost 85% of securitisation volumes constituted of secured loans. “If the worry around the Omicron variant grows, unsecured loan financiers would be worst affected in the securitisation market as borrowers have a higher probability to miss the loan repayment for an unsecured loan during periods of economic stress… We believe the securitisation market would continue to favour secured asset class over the near term until the threat of Covid infections reduces substantially,” said Abhishek Dafria, vice president and head of structured finance ratings at ICRA.