NBFCs’ fund-raise from securitisation grows 2.5 times

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Bengaluru, Apr 16: NBFCs have raised Rs 26,200 crore through securitisation in FY19, more than two and a half times the Rs 9,700 crore raised in FY18. This follows the relaxation of norms by the Reserve Bank of India (RBI), which has helped them reduce dependence on banks and other finance companies.
From an average 18-20% of overall disbursements, securitisation funded 37% of loans disbursed in Q3 and might increase to 50% by Q4FY2019, according to ICRA estimates.
Last October-November, NBFCs faced a severe liquidity crunch after the IL&FS crisis — as bigger NBFCs stopped lending to them and banks also turned wary. As a measure to ease credit, the RBI in November relaxed securitisation norms. Reducing the minimum holding period for loans to six months from one year to be eligible for securitisation helped microfinance companies and others like IFMR Capital (now known as Northern Arc Capital), which specialise in bundling risk.
The sudden increase in the industry’s reliance on securitisation also has some market observers worried. “The 2008 financial crisis in the US originated exactly like this — from the sub-prime mortgage market. Today, who do NBFCMFIs target? They finance homes, vehicles and business for people in rural or semi-rural areas — or urban borrowers who are unable to get a loan from a bank. These aren’t the prime loan candidates that banks target. So, I think we ought to be a little worried about this trend,” said an analyst, who did not want to be named.
Analysts say for NBFCs, securitisation is an easy way to cash in the illiquid assets — but there is the risk of defaults ballooning and leading to a domino effect, where all the cards in the game fall.