Flat Year for Indian Securitisation Market

Indian Securitisation Market (Pass through certificate, PTC) has been garnering lot of interest from investor community, both domestic and global, after registering ~105% year on year growth in FY2019 as compared to FY2018.

FY 2020 was full of ups and downs for the market – first half of the year was exceptional with the market clocking in more than INR 40,000 Crs . Hence, it was widely expected that market may cross cumulative volumes of one lakh crore for the year. However, Q3 and Q4’FY20 turned out to be sluggish and the market closed the year with cumulative annual volumes of only INR 69,000 Cr (the same was INR 70,000 Cr in FY 19).

Below factors resulted in lower than anticipated volumes in this fiscal :

  • With an intent to increase liquidity for the NBFCs, Indian government announced the much publicised partial credit guarantee scheme(PCG) for public sector banks to purchase high rated asset pools from NBFCs and HFCs. Considering that public sector banks normally offer financing at lower yields, many large NBFCs preferred this scheme over the traditional PTC route resulting in lower supply of pools in the market.
  • Mutual funds were the largest investors in the market in FY 2019 – however due to redemption pressures faced across the various fund-houses and the high risk aversion post the DHFL default, this investor segment did not participate much in FY 2020. Their market share was less than 10% in this fiscal as compared to 43% in FY 2019.
  • As can be seen below, Q4FY20 was virtually a wash out for the Indian securitisation market. This was a result of double whammy of Yes Bank crisis resulting in heightened risk aversion followed by the lockdown caused by Covid-19.
Quarter (FY20) Securitisation Volume Contribution
Quarter-wise PTC Market volume distribution for FY20

Asset Class-wise share

  • Share of auto-finance asset class increased to 58% from 52% in last fiscal.
  • Share of housing finance( mortgage securitisation)/LAP remained stable at 11% – the same was 10% in the previous year.
  • Microfinance volumes were relatively muted. This was a result of non-participation of one of the largest NBFC-MFI owing to its merger with a private sector bank. Some of the other large NBFC-MFIs also did not participate actively due to lack of clarity on capital benefits caused by Ind-AS transition.
  • Market witnessed multiple wholesale loan receivable transactions making this segment emerge as the third largest asset class.
  • Few transactions took place wherein multiple asset classes like loan against shares, lease rental receivables, project loan receivables, LAP portfolio receivables were bundled under a consolidated pool.
Asset ClassMarket Share
Auto-Finance(CV, CE, Car, 2W,Tractor)58%
Mortgages(Housing, LAP)11%
Micro,Small & Medium Enterprises5%
Gold Loans3%
Others ( Education loans, invoice financing, LAS, project loans lease etc)7%
Asset classwise PTC Market volume distribution for FY20

Originator Participation

  • One hundred and three sellers participated in the Indian Securitisation market (PTC), almost thirty percent of which were first time entrants into the PTC market.
  • From volumes perspective, market however was skewed in favour of the large sellers as can be noted below:
    • A large AA category rated vehicle finance NBFC alone contributed to almost twenty percent of the overall volumes of the market.
    • Top three sellers contributed thirty eight percent
    • Top five sellers contributed just about fifty percent of the overall PTC volumes in this fiscal.
Rating Category of Originating Entities% Originating Entities
AA 21%
Non-Investment Grade / Unrated16%
Rating category wise distribution : 21% of the total participating entities were from AA rating category.

Investor Participation

  • Private sector banks were the largest investors in the market in this fiscal.
  • Mutual funds participation was less than ten percent in the overall market.
  • Few deals have been placed with corporate treasuries, family offices, HNIs which is an encouraging sign for the market.

Salient Features

  • Basis publicly available data, Fitch’s Indian Subsidiary – India Ratings has been gaining market share of the PTC market over the past few years. It commanded almost forty five percent market share in FY 20 of the Indian PTC market.
  • Within Non-priority sector segment – gold and two-wheeler finance asset classes remained fairly-popular amongst the investors.
  • Various covered bond structures, replenishment based structures, invoice receivables backed transactions, project loan receivables backed transactions were tried in the market.
  • Post DHFL default, market saw freeze in payments for investors in securitisation transactions where DHFL was a servicer. This was a result of lack of clarity with respect to moratorium applicable on assets in possession of a financial service provider under Insolvency and Bankruptcy Proceedings. However the same was clarified in detail by Ministry of Corporate Affairs in a notification dated 30th January 2020 post which the repayments to the investors resumed.
  • Market also saw few transactions wherein an entity other than originator was appointed as the servicing agent for the securitisation trust. Such arrangements are fairly popular in matured ABS markets such as USA & European markets – however in India , such structures have been rare.
  • Performance of the live transactions will need to be closely monitored this year considering Covid-19 is expected to increase delinquencies across asset classes. This might also result in muted PTC volumes in FY 21. Further analysis on this particular aspect will be shared shortly.

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