Securitisation hikes by 80% , deals worth Rs 2.4 lakh cr likely in FY25: ICRA

NEW DELHI: Securitisation volumes saw an 80 per cent year-on-year rise, reaching Rs 68,000 crore in the December quarter, according to ICRA.

The agency revised its total volume estimates for the current financial year to Rs 2.4 lakh crore, up from the earlier forecast of Rs 2.1 lakh crore, marking a 25 per cent rise from Rs 1.92 lakh crore in FY24.

What is securitisation?

Securitisation is a financial process where a lender transfers future receivables, such as loan repayments, to another party in exchange for immediate upfront cash. This helps the lender unlock liquidity while allowing the investor to earn returns from the receivables over time.

Growth driven by private banks

The domestic rating agency revealed that the October-December (Q3) volumes were corresponding to the July-September (Q2) period, with private sector banks playing a pivotal role in bolstering the numbers. Traditionally, non-bank lenders have relied heavily on securitisation to raise funds.

Abhishek Dafria, head for structured finance ratings at Icra, highlighted the continued sell-down of portfolios by private banks as a key driver for the growth in Q3.

Addressing deposit challenges

The banking sector is grappling with a "war for deposits," raising concerns about resource availability to meet credit demand. Additionally, HDFC Bank's recent merger has prompted it to rely on securitisation.

"Securitisation enables the banks to improve on their credit-to-deposit ratio, given that the pace of deposit accretion has been relatively lower than expected in this fiscal. We expect the banks to continue to securitise part of their assets over the near-term until the credit-to-deposit ratio reaches acceptable levels," Dafria explained to news agency PTI.

NBFC sector and asset quality stress

While vehicle loans continue to dominate securitisation volumes, the Q3 growth was affected by muted disbursements in the non-banking financial company (NBFC) sector, especially in microfinance and personal loans. Dfria said that industry headwinds and asset quality concerns also contributed to this slowdown.

Personal and unsecured business loans have faced increasing asset quality stress in recent quarters, leading to a decline in their securitisation volumes.

However, ICRA assured that this is unlikely to affect the credit quality of rated pass-through certificate (PTC) transactions materially.

Trends in securitisation
Of the total securitisation volumes, approximately 60 per cent were driven by PTC issuances, with the remainder through direct sell-downs. Public sector banks predominantly prefer the direct assignment (DA) route, while private sector banks favour PTCs.

The agency noted that vehicle loans remain a dominant asset class in the securitisation market, as banks and NBFCs frequently securitise car and commercial vehicle loan portfolios.

ICRA concluded that though microfinance loans showed significant momentum in the first quarter, growth in subsequent quarters narrowed down due to asset quality concerns, leading to lower disbursements and funding requirements.

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