covid: the third wave of COVID will have an impact on securitization, the volumes for fiscal year 22 will fall below previous estimates: Icra

Lockdowns aimed at containing the spread of the third wave of COVID have hurt loan collections and new loans from non-banks, and in turn will impact securitization volumes, a national rating agency said on Tuesday. Overall securitization volumes – when a non-bank lender transfers future receivables against loans or a group of loans to another entity for initial liquidity – will amount to Rs 1-1.1 lakh crore over the course of the year. fiscal year 22, against Rs 1.2 lakh estimated earlier, said in a report.

Securitization volumes could thus be affected in the January-March quarter because NBFC (Non Bank Finance Companies) and HFC (Housing Finance Companies) could reduce disbursements, especially to sectors impacted by COVID, and investors would prefer to wait until the threat is diminishing. , the agency said.

Some states have already started imposing restrictions, although so far of a milder nature, said ICRA group chief for structured finance Abhishek Dafria, adding that the lockdowns were not only impacting the economy. collection capacity as staff fell ill, but also on borrowers’ ability to generate income.

In the event that the severity of COVID infections increases and results in higher hospitalization rates, state governments could impose strict lockdown measures to control the spread of the virus and investors will also wait for the threat to subside, did he declare.

“A higher proportion of securitization deals are usually placed in March and so we hope that the spread of the virus will be contained sooner,” Dafria noted.

According to him, a decrease in disbursements would also have an impact on the growth of the securitization market in fiscal year 23, he added.

Traditionally, securitization through Direct Assignment (DA) transactions (bilateral transfer of a retail loan pool from one entity to another) has accounted for about two-thirds of total volumes, with certificate transactions of passage (PTC) (the loans are sold to an SPV which issues the PTC) representing the balance.

Due to concerns over COVID-related disruptions, preference for PTCs increased (45% share in Q3 volumes) as credit enhancements in these structures would be able to absorb larger losses than expected than those that might arise in the transaction, the agency says.

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