Higher volumes could make securitization an important source of funding for NBFCs: Crisil


Non-bank finance companies (NBFC) are likely to rely on securitization as a source of funding, led by higher volumes, which after a slowdown will lead to higher payouts from non-banks. Banks can also improve their retail and priority sector targets through securitization, rating agency Crisil said in a report.

The securitization volume grew by 70% to Rs 35,000 crore in the first quarter of the current fiscal year, led by higher participation from public and private sector banks along with other financial institutions. Foreign financial institutions, including banks, acquired 17% of all securitized assets. A stable market environment could mean greater participation from other major investors, including foreign institutions and mutual funds, the agency said.

In addition, the base effect caused by the low volumes of the last fiscal period due to the second wave also led to sharper growth in Q1FY23. Securitization volume growth would have been higher had it not been for interest rates, leading to divergent return expectations among NBFCs and banks, the rating agency said.

“More than 80 non-bank entities that were present in the market in the first quarter, up from 50 in the previous fiscal year, indicates that originators are very comfortable with the securitization process. Market activity in the quarter also reflected the diversity of different asset classes across secured and unsecured loan categories,” said Krishnan Sitaraman, senior director and deputy chief ratings officer of CRISIL Ratings.

Mortgage-backed securitization (MBS) loans made up 45% of the total volume, compared to 53% in the previous year, while asset-backed securitization (ABS) made up the balance.

Within the ABS category, company car loans (CV) made up 49% and microfinance 20% of the transaction value, with many underlying loans qualifying for the priority sector loan (PSL) classification. Gold bond securitization (14%) continued to rise, while investor interest in two-wheelers, education, school finance and unsecured loans was renewed.

However, any sharp rise in interest rates, high inflation and future pandemic waves impacting economic activity could be potential headwinds for securitization volumes this fiscal year, the report said.

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