Securitisation volume up 20% to Rs 1.4 Tn

Regulatory changes, wider participation, and innovative structures to nudge further growth

FinTech BizNews Service

Mumbai, January 5, 2024: Securitisation volume continued on its upward momentum, surging 20% on-year to Rs 1.4 lakh crore (Rs1.4trillion, Tn) in the first nine months of this fiscal (see Chart 1 in annexure). This is despite the exit of one of the largest housing finance companies (HFC) originators in the second quarter of the fiscal. If one were to adjust for the HFC volume and consider only securitisations by other originators, the market grew by a whopping 40% on-year. The rise and spread of the market are expected to continue, given expected healthy credit growth among NBFCs, the retailisation agenda of banks that are the largest investors in the market, and the recent regulatory guidelines on risk weights by the Reserve Bank of India (RBI).

Said Ajit Velonie, Senior Director, CRISIL Ratings, “Growth momentum in securitisation is expected to remain strong as NBFCs look to further diversify their resource mix, especially given the increased risk weights for banks’ loan exposures to NBFCs. In the first nine months of this fiscal, we have already seen the market widen with the number of originators crossing 135 as compared to 120 in the corresponding period last fiscal.” The pass-through certificate (PTC) route accounted for 54% of the overall volume and direct assignment (DA) transactions comprised the rest (see Chart 3 in annexure). Among asset classes, vehicle loans (including commercial vehicles, passenger vehicles and two-wheelers) cornered the biggest share (41%; up from 32% in the first nine months of last fiscal), followed by mortgages (20%) and microfinance (16%).

The volume of personal and business loan securitisations doubled (13% of volume), with 230 pools securitised by 55 originators in the first nine months of this fiscal, compared with 150 pools securitised by 45 originators in the corresponding period of the previous fiscal. In terms of the investor base, private banks dominated the market, accounting for 46% of volume, followed by public sector banks (25%) and foreign banks (14%). Participation by other investors such as mutual funds also increased, as they explore securitisation to diversify their investments and enhance risk-adjusted returns. The third quarter also saw foreign banks eyeing investments in the microfinance space through the PTC channel to meet their priority-sector-lending requirements. The robust performance of past securitised pools has been an important factor in propelling investor confidence in microfinance and other unsecured asset classes. PTCs rated by CRISIL Ratings had median monthly collection ratios (MCRs) of 98-100% in secured asset classes and microfinance, and 94-96% in unsecured asset classes. The market also exhibited wider acceptance for replenishing structures. PTC transactions of over Rs 2,500 crore were structured with pre-defined replenishment periods, wherein the collections from the underlying pool are used to purchase new loan assets instead of amortising the PTCs, thereby elongating instrument durations to meet the tenure requirements of investors. Such transactions were seen across asset classes, from microfinance to vehicle, personal and business loans. Overall, the securitisation market continues to expand with more originators and newer transaction structures finding wider acceptance. Given the continued growth and strong performance track record of securitisations, more new structures are expected to find their way into the market, enabling better alignment with investor requirements and market deepening.

(DISCLAIMER: CRISIL Ratings has taken due care and caution in preparing this report. Information has been obtained by CRISIL Ratings from sources which it considers reliable. However, CRISIL Ratings does not guarantee the accuracy, adequacy or completeness of information on which this report is based and is not responsible for any errors or omissions or for the results obtained from the use of this report. CRISIL Ratings, especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this report. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.)

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