After two months of lull amid the COVID-19 second wave, securitisation deals returned in June, taking the overall transaction value in Q1 to Rs 20,000 crore, a CRISIL report said on Thursday.
The activity, which is three times the number witnessed in the national lockdown-stricken first quarter of FY20, is, however, half of the pre-pandemic levels, the report added.
Securitisation refers to an activity where a financier or lender transfers future receivables on a loan or a bunch of loans to others, which helps with immediate liquidity requirements.
Over 60 per cent of the Rs 20,000 crore of securitisation transactions were in June alone, it said, adding that April and May had seen a sequential decline in collection efficiency of securitised pools due to a spike in COVID-19 cases and state-specific lockdowns.
Though several deals across originators and asset classes were under negotiation, dampened investor enthusiasm meant that most deals did not consummate, it said, adding that non-bank lenders also scaled-down disbursements and downsized fresh business plans.
"The restrictions on business activity, combined with caution exercised by companies keeping employee safety in mind, brought about an industry-wide slowdown in business operations," the agency's senior director Krishnan Sitaraman said.
Apart from that, he said many entities had raised reasonable capital and liquidity to fortify their balance sheets in the past few quarters, which diminished the appetite for immediate funding, given lower disbursements, thus reducing the necessity for securitisation.
In June, several transactions under discussion moved ahead and were consummated. Investors such as foreign banks, private banks, public sector banks and mutual funds continued to mark their presence through cherry-picking of investments in securitised assets through either pass-through certificates (PTCs) or direct assignments (DAs), the agency said.
Commercial vehicle loans remained the main draw in asset-backed securitisation (ABS), transactions backed by gold and business loans also found favour, it added.
ABS transactions comprised 47 per cent of securitisation volume, while mortgage-backed securitisation (MBS) accounted for 53 per cent after interest from private and public sector banks.
Interestingly, in some transactions, housing-finance companies (HFCs) invested in the assets of other HFCs, the agency said.
Overall, more than 40 entities executed transactions, with some assignors emerging with their first-ever deals. The majority of these deals were structured in a TIUP (timely interest and ultimate principal) waterfall mechanism, with interest promised periodically and principal committed to be paid entirely only at the maturity of the transaction, it noted.
On the outlook front, the agency said the continuation of the traction in securitisations in the foreseeable future will be contingent on the steps taken to contain the pandemic, withdrawal of containment measures and a pick-up in business activity.
Asset quality issues in the economy will also have a bearing on the securitisation volumes going ahead, it said.
Its senior director Rohit Inamdar said the volume this fiscal should be closer to the pre-pandemic level as compared to the last fiscal.