covid: micro-loan securitization volumes could have an impact in the fourth quarter due to the third wave of COVID-19: report

Microfinance loan securitization volumes, which improved in the first nine months of FY22, may see some impact in the fourth quarter due to concerns over the third wave of COVID-19, it said Tuesday. Ratings. In the first nine months of the current financial year, there has been a recovery in absolute terms with micro-loan securitization volumes of around Rs 6,200 crore compared to around Rs 1,900 crore a year ago.

Volumes, however, remained well below the pre-COVID period (around Rs 29,000 crore in FY2020).

“Securitization volumes in the fourth quarter (FY22), which should have otherwise seen a healthy improvement, may be impacted by concerns over the third wave of COVID infections which could affect the repayment capabilities of borrowers who have a financial profile. marginal,” the ratings agency said in a report on Tuesday.

The agency’s Vice President and Group Head (Structured Finance Ratings), Abhishek Dafria, said the third wave of COVID infections had been the least disruptive so far, but until the numbers begin to decline, investors may remain reluctant to invest in microloan pools.

While pass-through transactions had a dominant share, the share of pass-through certificates (PTCs) in micro-loan securitization increased post-pandemic as investors prefer to have credit enhancements in the structure to absorb losses. higher than expected losses in the pool, he said.

The report indicates that microfinance entities will continue to face difficulties in raising funds through short-term securitization, as investors remain wary of the performance of borrowers given the unsecured nature of the loan.

Securitization, which before the pandemic represented between 30 and 40% of disbursements for NBFC MFIs, saw its share drop to less than 20% after the pandemic, with fewer entities able to exploit the securitization market.

The share of microloan securitization in overall securitization also declined from a peak share of 15% in FY20 to 10% in FY21 and around 8% in the nine months of fiscal year 2022, according to the report.

The agency said the collection efficiency observed in its rated microloan pools saw a decline during the moratorium period (April to August 2020) and again in the first quarter of fiscal 2022 due to the second wave.

However, collections saw a healthy rebound in the following period, demonstrating the resilience of borrowers, he said.

Additionally, Icra-rated live pools have a higher share of portfolio generated after the moratorium, which performed better as microfinance entities disbursed borrowers with better credit profiles, according to the report.

In live-rated microloan pools, there was only one senior tranche rating downgrade post-pandemic. For all other transactions, performance was robust with no loss to investors after factoring in credit improvements in the structure, he added.

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