The overall securitisation volumes for FY24 grew 4 per cent year-on-year (y-o-y) to ₹1.88-lakh crore despite the exit of the previous year’s largest originator — HDFC, following its merger with HDFC Bank, according to ICRA.

The securitisation volumes are projected to comfortably cross ₹2-lakh crore in FY25 due to an increase in participation by banks as originators.

The rating agency noted that securitisation volumes in Q4 (January-March) FY24 witnessed a healthy growth of 26 per cent over the preceding quarter, rising to ₹48,000 crore.

Nonetheless, the volumes were much lower compared to Q4 FY23, when securitisation had touched ₹63,000 crore; 10 per cent of the latter in volume terms was attributed to wholesale loan securitisation, that has not been repeated subsequently, it added.

The agency opined that continued growth of the securitisation market for the last four fiscal years in a row (post Covid period) reflects the high retail credit demand in the country being catered to by the non-banking financial companies (NBFCs) and the housing finance companies (HFCs), increased reliance on securitisation by the originators as a funding tool, and growing investor base.

Abhishek Dafria, Senior Vice President and Group Head, Structured Finance Ratings, at ICRA, said: “The securitisation market volumes expanded by ~25 per cent y-o-y in FY24, if we exclude HDFC Limited, which exited the market in Q2 FY24. The increase in volumes was driven by both existing large originators, who securitised higher volumes during the year, and new originators.

We witnessed a sharp increase in securitisation by small finance banks as well as initial steps taken by a few private sector banks in this space to support their portfolio growth, given the recent challenges in deposit growth rates. If similar trends continue, ICRA projects the volumes to comfortably cross ₹2-lakh crore in FY25.”

Nonetheless, the increasing share of co-lending by the NBFCs and HFCs would challenge the growth in the securitisation market, though at this juncture ICRA expects an increase in both forms of funding, Dafria said.

ICRA assessed that the share of pass-through certificates (PTCs) rose to 57 per cent of the market for FY24 against 40 per cent observed in the past couple of years, mainly due to the exit of HDFC, which sold mortgage loans through the direct assignment (DA) route.

Vehicle loans continue to form the biggest asset class in PTC issuances, whereas microfinance and mortgage loans are largely securitised through the DAs.

“Small business loans and personal loans have been consistently increasing their participation in the market, while the current proportion remains relatively lower in the overall volumes,” per the agency.

ICRA also saw a rise in securitisation volumes originated by non-financial sector entities, where trade receivables and lease rentals are being securitised, thus helping in widening and diversifying the PTC market in the future.

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