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NBFC-MFIs raise Rs 26,000 cr through securitisation in FY19

Mumbai: Despite the tight liquidity conditions, the Non-banking finance companies (NBFCs) and micro-finance companies (MFIs) raised nearly Rs 26,200 crore through securitisation in the year ended March 2019, a growth of 170 per cent over FY18, says a report. In the year ended March 2018, NBFC-MFIs have raised Rs 9,700 crore through securitisation. NBFC-MFIs faced tight liquidity condition in FY19 following a series of default by Infrastructure Leasing and Finance Services (IL&FS).

Their reliance on the securitisation route to raise funds increased to meet their growth targets in FY19, according to a report by rating agency Icra. "In FY18 and H1 FY19, securitisation contributed to only 18-20 percent of the overall disbursements. However, this number leapfrogged to 37 percent and estimated 50 percent in the third quartet of FY19 and Q4 FY19, respectively," Icra group head (structured finance ratings), Vibhor Mittal, said in a note. Nearly half of incremental disbursements in the fourth quarter of FY19 is estimated to have been met through the securitisation route.

Investors were also comfortable buying retail loan portfolios originated by these entities as opposed to taking direct on-balance sheet credit exposure, especially for small and medium-sized entities," he said. In FY19, 43 entities raised funds through the securitisation route as against to only 24 such entities in FY18. Of this, close to 14 entities were first time entrants in the securitisation market which is an encouraging development, the note said. The funding cost, however, increased due to tighter liquidity in the market. The yields were higher by 100-150 basis points for both priority sector lending (PSL) driven and non-PSL transactions in the third quarter of FY19 over the lows seen in FY18.

With some easing in systemic liquidity, yields came off by around 25-30 bps in the fourth quarter of FY19. The securitisation market in the country can be segregated into two types of transactions rated Pass Through Certificate (PTC) transactions, and unrated Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another). The DA transaction volumes undertaken by NBFC-MFIs were around Rs 13,500 crore for FY19 as against only Rs 4,000 crore and Rs 3,000 crore in FY18 and FY17 respectively, the note said.

The rating agency further said securitisation will remain a key source of funding for NBFC-MFIs in FY20 as well. However, with factors such as consolidation in the sector (banks and other large NBFCs looking to acquire MFIs), banks increasingly looking to partner with NBFCs for originating PSL assets and improving liquidity conditions, the dependence on securitisation could moderate in the near to medium term, it said.

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