Debt recovery capacity of NBFCs and HFCs may get affected. If the Omicron version disrupts business activities and even results in a temporary lockdown, the securitization volumes for the rest of the year could be severely affected as investors would prefer to wait for the threat to subside. NBFCs and HFCs can again reduce their disbursements the way they saw during the lockdown of the previous period. The quantum of securitization in FY2023 may also be affected by lower disbursements as the availability of retail credit for securitization will also decline, Icra said.
“While the current year has seen a healthy improvement in the securitization volumes so far as compared to the previous year, the volumes are still around 40% of the pay-covid period,” it said. Abhishek Dafria, Vice President and Head – Structured Finance Ratings at Icra. “The risk of spreading the Omicron variant is again a sign of concern. It is still early days to assess its impact and we expect the vaccination to be effective against the new variant as well.” According to Icra, some state governments may choose to take early precautions and resume measures adopted in the past, such as local lockdowns or night curfews, which will also result in negative sentiments.
Securitization of secured asset classes, such as mortgage-backed loans, vehicle loans, gold loans, etc., has been preferred over unsecured asset classes such as microfinance or SME loans during the post-COVID period. Collections in safe asset classes have returned faster as compared to unsecured asset classes. For the first half of FY 2022, according to Icra, about 85% of the securitization volume is made up of secured loans.
If concerns about the Omicron version rise, unsecured loan financiers will be the worst hit in the securitization market as borrowers are more likely to miss loan repayments for unsecured loans during periods of economic stress. Such financiers will find it difficult to find investors for their securitized pool or they will have to offer higher credit enhancements which will increase the cost of doing transactions.