Moratorium extension announced by the RBI to hurt securitisation market: ICRA
New Delhi, 22 May 2020 : The Reserve Bank of India (RBI) on Friday extended of the loan moratorium policy earlier announced under its ‘Covid-19 Regulatory Package’ by another three months upto August 31, 2020, thus making it a six-month moratorium starting from March 1, 2020. While the extension would provide relief to many retail borrowers, if incorporated by the lending institutions, it would be detrimental to the securitisation market which has been a key funding source for the non-bank financial institutions (NBFCs, HFCs and MFIs). As per ICRA note, with no cash flows expected until August from loans under moratorium, investments in purchase of such loans will dry up. Investors may also take time to rebuild their confidence in the collection efficiencies of originators as the consumer behaviour towards loan repayments may also be impacted due to the long moratorium period. Consequently the securitisation volumes are expected to be significantly low in H1 FY2021, as against Rs. 1.1 lakh crore raised in H1 FY2020, as investors will be more cautious on the performance of retail loan pools for the near term.
Commenting further on the impact, Mr. Abhishek Dafria, Vice President and Head – Structured Finance Ratings at ICRA, says, “. Liquidity pressures on NBFCs, MFIs and HFCs would also grow as securitisation has been a key funding source in recent years with certain originators having an off-balance sheet portfolio of as high as 30% of their total assets under management. Having said that, if the economic revival was to be sharper with businesses resuming operations and the lockdown ending effectively, we may find lesser borrowers opting for the moratorium that could support the securitisation market.”
Already the securitisation volumes had come to a grinding halt in April and May as the investors chose to stay away from purchasing pooled loans that are under moratorium and are not going to result in any immediate cash flows. Further with the economic stress prevalent in the country, the ability of the borrowers to meet its obligations in a timely manner even post the moratorium ends remains to be seen.
ICRA has observed that the moratorium extension allowed by the RBI in its earlier announcement in March had been adopted by almost all the NBFCs. For the ICRA-rated securitisation transactions, the moratorium had been received by the investors with very few exceptions. If the NBFCs opt for the second round of moratorium, a similar approval would be required for the securitisation transactions from the investors. It is expected that investors would largely proceed with the moratorium in line with the policy being adopted by the respective NBFC that is acting as a servicer for the pooled loans. In the event that such a moratorium is not provided, it could result in deterioration of the rated pass-through certificates (PTCs) as the collections may still be weak during the moratorium period.
The low incremental disbursements by non-bank finance sector across major asset classes (vehicle loans, home loans, microfinance loans etc.) seen in recent months due to the nationwide lockdown arising from the Covid-19 pandemic has already led to reduced availability of loans eligible for securitisation. Adds Mr. Dafria, “If the funding situation for NBFCs remains challenging in the coming months, fresh disbursals could remain muted which would have a bearing on the securitisation volumes even in H2 FY2021”.
