ABS vs MBS

• Prominent investing segments such as public and private sector banks preferred the relatively more resilient mortgage asset class. This is reflected in mortgage-backed securitisation (MBS) assets comprising 43% of the overall quarterly volume (see chart 2)
• In the asset-backed securitisation (ABS) category, commercial vehicle (CV)-backed loans were dominant, buoyed by past trends indicating a lower impact from short-term disruptions caused by restrictions on movement of goods and people. Transactions with underlying CV loans comprised 39% of the overall quarterly volume
  
• The proportion of other asset classes such as two-wheeler (1%) and gold (11%) loans declined somewhat while that of microfinance loans remained at 9% of funds mobilised in the quarter
  

ABS vs MBS preference

• Despite the rise in securitised volume this fiscal, the number of entities in the ABS segment remained almost the same as that in the year-ago period. The MBS segment, though, saw some participants drop out (see chart 3)
• The fall in ABS entities could be attributed to the absence of many microfinance and unsecured loan providers in the securitisation space
  
• Low disbursements, coupled with asset performance concerns during the moratorium phase and subsequent waves of the virus could be underlying factors
  

Sell-down using DA vs PTC

• At 59% share, the direct assignment (DA) route continued to dominate the market, with the pass through certificate (PTC) route making up the rest (see chart 4)
• While ~30 investors acquired loan assets using the DA route, more than 40 investors invested in PTCs. Investor segments such as mutual funds, insurance companies and high net-worth individuals (HNIs), have had limited presence in the current fiscal so far
  
• The number of entities using DA route has declined from 65 in the first nine months of fiscal 2021 to 53 in the current period. However, those using PTC route has remained stable at 63
  
• As the impact of the third wave of the pandemic on the economy wanes and disbursement activity normalises, growth in loan book should become a key priority for banks, providing a boost to the DA segment
  

Securitisation flows

• Securitisation has been a major tool of fund mobilisation for non-banking financial companies (NBFCs) since the credit cliff event of September 2018
• Prior to the event, i.e., in fiscal 2018, securitisation flows accounted for 14% of the annual disbursements (see chart 5) of the top 10 NBFCs¹ (including microfinance institutions, or MFIs), which used securitisation. That rose to 22% and 33% in fiscals 2019 and 2020, respectively
  
• However, the pandemic brought about a benign regulatory environment in fiscal 2021, which provided alternatives to funding access for NBFCs, reducing the dependence of many entities in the securitisation segment. Accordingly, the proportion of securitisation flows for the entities fell back to ~23% of the annual disbursement
  

With the emergence of the third wave, securitisation activity could be slow in the near term. However, the use of securitisation as an integral element of liquidity management and as an alternative funding source for financing entities will continue to drive the market in future, as economic activity normalises.

— Rohit Inamdar, Senior Director, CRISIL Ratings

¹Top 10 NBFCs using securitisation does not include HFCs