The securitisation volumes in NBFC-MFI segment witnessed an unprecedented drop to Rs 6 billion in H1 FY2021 compared to around Rs 140 billion in H1 FY2020 on account of disruptions caused by the Covid-19 pandemic. Possible weakening of the loan repaying capability of the NBFC-MFI borrowers given their fragile financial position and their low ability to clear multiple over dues made the investors wary of investing in fresh securitisation transactions. Additionally, steps taken by the RBI to make available on-balance sheet funding through TLTRO and special liquidity scheme and funding support from institutions like NABARD, MUDRA and SIDBI for the NBFC-MFIs segment, also reduced the reliance on securitisation to some extent.
Abhishek Dafria, Vice President and Head -Structured Finance Ratings at ICRA, said, "Securitisation volumes in the NBFC-MFI sector will be significantly higher in H2 FY2021 compared to H1 FY2021 driven by active participation from higher rated NBFC-MFIs and restoration of Investor confidence supported by improving collections of most of the entities in the sector during the post moratorium period. Further, notwithstanding any sharp increase in Covid-infected cases in rural parts of the country or any further lockdowns, disbursements in the sector are expected to witness healthy improvement which would raise funding requirements and thus support securitisation volumes in H2 FY2021. However, the lower-rated NBFC-MFIs entities (i.e. rated BBB+ and lower) though would still find it difficult to raise funds through securitisation until there is visibility on recovery in collections and limited migration of delinquencies from softer to harder buckets. Proportion of lower rated entities raising funds through securitisation is expected to be much lower in FY2021 compared to the previous year."
Over the past three fiscals, the share of lower-rated microfinance entities in the overall securitisation volume of NBFC-MFIs has remained in the range of 20-30%. However, the same dropped to around 7% in H1 FY2021 due to investors’ concerns regarding the expected weakening in the credit profile of the underlying borrowers and the respective entities as well. Lower rated entities that are typically geographically concentrated may need to exhibit steady collections over a longer period before they find favour in the securitisation market. Further, the availability of eligible assets for securitisation in the books of smaller NBFC-MFIs has shrunk due to existing assets remaining under moratorium and negligible fresh disbursements during H1 FY2021. Since the majority of the smaller NBFC-MFIs have not benefited much from the funding support and facilities announced by regulatory and development institutions during the pandemic, these smaller entities are expected to find it more challenging to manage their regular debt repayments amid lower than pre-Covid collections and difficulties in raising fresh funds from their conventional sources on account of heightened lenders’ concern regarding the stability of their credit profiles and the recent instances of corporate governance issues in the sector.
We have witnessed restoration of investor confidence to some extent supported by improving collections reported by most entities in the sector during the moratorium. Further, the asset quality and collection performance of rural borrowers has been better than that of semi-urban and urban borrowers as majority of the borrowers in rural are engaged in life-essential activities such as agri-allied, dairy business etc. which have witnessed least disruption in their business activities, it said.
"Despite the improving trend, collections continue to remain lower than pre-lockdown levels with concerns still in eastern parts of the country such as West Bengal and Assam. Thus, a spike in delinquencies is expected in the immediate months following the end of the moratorium in August 2020. Slippages in harder buckets would be a concern as past trends indicate that recovery from harder buckets would be difficult given the unsecured nature and inability to pay multiple instalments," added Mukund Upadhyay, Assistant Vice President, ICRA.
