Omicron threat can severely affect loan securitisation as asset quality concerns grow

New Delhi: The looming threat of Omicron variant can "severely affect '' loan securitisation volumes in the country as concerns over retail asset quality reemerge, a domsetic credit rating agency said on Monday.

The new variant of the novel coronoavirus, which has already been reported from a few Indian states, can lead to the volumes of securitisation, where the originator of a loan typically passes on future receivables to another entity for a discount against upfront cash, going down from what was initially estimated.

The threat of the newly discovered Omicron variant of Covid-19 may once again make investors cautious when purchasing retail pools originated by non-banking financial companies (NBFCs) and housing finance companies (HFCs) through direct assignments and securitisation transactions, Icra said in a report.

"The spread of the virus could reignite worries on statewide or nationwide lockdowns which would have a bearing on the loan collection abilities of the NBFCs and HFCs," it said.

The agency, which had earlier estimated the securitisation volumes (including direct assignments) to rise by up to 40 per cent to Rs 1.2 lakh crore for FY22, with about 60-70 per cent of the volumes being generated in the second half of the fiscal, said securitisation volumes could be severely affected for the rest of the year as the investors would prefer to wait for the threat to subside.

"The volumes are still only about 40 per cent of the pe-Covid period. The rise in Covid-19 infections during April and May 2021 depressed the securitisation volumes for a while. The threat of spread of the Omicron variant is again a sign of worry," its head for structured finance ratings, Abhishek Dafria, said.

If the worry around the Omicron variant grows, the unsecured loan financiers would be worst affected in the securitisation market as the borrowers have a higher probability to miss the loan repayment for an unsecured loan during periods of economic stress, he added.