Securitization can be a key source of funding for financial companies: CRISIL Ratings

Chennai, July 15 (IANS): Securitization could become a key funding source for non-banks focusing on loan portfolio growth by increasing disbursements after a prolonged downturn, ratings agency CRISIL Ratings Ltd said in a report.

The rating agency also said securitization can be an attractive investment avenue for banks looking to grow their retail assets.

As the macroeconomic situation and interest rates stabilize, transactions could resume, propelling the volume of the securitization market to near pre-pandemic levels.

Securitization transactions hit highs of Rs.1.9 lakh crore in fiscal 2019 and 2020 before the pandemic dampened its momentum, according to the report.

Meanwhile, in the first quarter of the current financial year, securitization volumes surged by around 70% to around Rs 35,000 crore, due to increased economic activity.

Additionally, the base effect caused by last year’s low volumes due to the second wave of the pandemic also played a role. Volumes for the first quarter of this fiscal year even exceeded those of fiscal 2019, but remained lower than those of fiscal 2020, according to the report.

“In fact, volumes in the first quarter could have been even higher had it not been for rising inflation and higher interest rates that have prompted caution about borrowers’ ability to repay, and divergent return expectations. among originators and investors,” said CRISIL Ratings.

“More than 80 non-bank entities in the market in the first quarter, compared to about 50 last year, indicate that originators are very comfortable with the securitization process. Market activity in the last quarter has also reflected the diversity of different asset classes across secured and unsecured lending categories,” said Krishnan Sitaraman, Senior Director and Deputy Director of Ratings, CRISIL Ratings.