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Rising Covid cases are expected dampen the securitisation market, affecting fund-raising for NBFCs in the near term, ratings agency ICRA said.

"Despite the healthy activity seen in the securitisation market in Q4FY2021, the rising Covid-19 cases may again create uncertainty among the investors," Abhishek Dafria, Vice President and Head, Structured Finance Ratings at ICRA, said in a report.

"On a positive front, the lockdowns announced by a few state governments at present are less restrictive in comparison to the nationwide lockdown seen last year. Nevertheless, an unabated increase in the Covid cases is likely to bring about fears of harsher lockdowns which could impact the asset quality of retail loans especially for unsecured loans such as in the microfinance sector."

According to Dafria, the rising Covid cases in turn would impact the fund-raising ability of the NBFCs and HFCs through securitisation of their assets.

"Successful implementation of the vaccination programme and ability of government agencies to arrest the rising infections would remain critical in the near term."

As per the report, ICRA Ratings estimated non-banking financial companies (NBFCs) and housing finance companies (HFCs) securitised volumes at about Rs 40,000 crore of their loan assets in Q4 FY2021, which is similar to volumes seen in Q4 FY2020.

The trend, ICRA said, implies a sharp quarter-on-quarter (Q-o-Q) growth of 60 per cent which comes on back of a similar Q-o-Q growth witnessed in Q3 FY2021.

Last year, due to the Covid-19 pandemic and resultant nationwide lockdown, securitisation volumes had seen an unprecedented fall in H1 FY2021 after two successive years of healthy volumes close to Rs 2 lakh crore each.

As economic activities gradually resumed and loan disbursements gained momentum, even reaching pre-Covid levels for some NBFCs, the securitisation market saw a healthy uptick in volumes during H2FY21.

Consequently, the rating agency's estimates showed that securitisation volumes for FY21 were at about Rs 85,000 to 90,000 crore, of which volumes in Q4 itself contributed nearly 45 per cent.

"For FY2021, securitisation through 'Direct Assignment (DA) transactions' accounted for about two-thirds of total annual volumes, in line with the trend seen over the past few years," the report said.

"The balance one-third is through 'Pass Through Certificate' (PTC) transactions. During the year, securitisation of mortgage-backed loans and gold loans found favour with investors, primarily due to secured nature of the underlying loans. On the other hand, volumes dropped for unsecured loans due to the higher risk perception."