Securitisation volume tops Rs 75,000 crore in the first half

October 18, 2022 location

Mumbai

Securitisation volume jumped 48% in the first six months of fiscal 2023 and crossed the Rs 75,000 crore mark, indicating continued faith of investors in retail loans amid macroeconomic headwinds.

CRISIL Ratings had, in an earlier press release¹, highlighted the steady collection ratios of securitised pools despite the economic slowdown. With more than 110 originators across asset classes, the market saw increased traction.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “The long track record of stable performance of securitised pools, despite several episodes of adversity, may have eased investor concerns. That said, the reticence of some investors to take fresh exposure led to some deals remaining unexecuted, shaving off ~10% from the segment’s potential growth.”

Mortgage-backed securitisation (MBS) loans remain the largest segment among asset classes, accounting for ~40% of market volume (see chart 1), followed by commercial vehicle (CV) loans (30%) and microfinance loans (13%). In comparison, property-backed and CV loans had accounted for 45% and 21% respectively, in the first half of last fiscal.

Direct assignment (DA) transactions, including mortgage, gold and microfinance loans, accounted for ~62% of the volume (see chart 2). Correspondingly, the share of pass-through certificates (PTCs) declined to 38% from 44% a year ago.

Private (52%) and public sector (23%) banks lapped up most of the loan assets on offer. Several non-banking financial companies (NBFCs) and public sector banks moved gingerly towards PTC structures, while some foreign banks invested in DA transactions.

One PTC transaction comprised loans originated by NBFCs under a co-lending framework with another larger NBFC and securitised by the latter, a first in this segment in India. Small finance banks — large issuers in their previous non-bank avatars — explored a return to the market as issuers.

The securitisation sector has witnessed some unconventional practices in the past few months, one being non-mortgage transactions offering flexible rates on their liability instruments, to accommodate investor expectations. This was a first for non-mortgage deals, including for DA pools. Usually, securitised pools of property-backed, long-term loans are designed with rates benchmarked to an external indicator.

Nearly a fifth — an unprecedented high — of the PTC transactions in the past three months had a turbo-acceleration proviso, which limits or prohibits outflow from the pool to the originating entity until the investor is fully paid.

While some of the changes have stemmed from investor apprehensions pertaining to the health of retail borrowers, others are signs of a broadening and deepening market. Notably, more PTC deals are being listed on the bourses, attracting retail and corporate treasury investors. Secondary market sales are more amenable and efficient for listed securities, bringing liquidity to an erstwhile illiquid segment.

To be sure, a number of market participants — banks and NBFCs alike — have reached arrangements under new lending formats such as co-lending. However, its impact on securitisation will likely not be material in the near term till the players get accustomed to these new formats.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “Securitisation offers access to cherry-picked loans with track record of repayment, apart from clear regulations, watertight legal architecture, and on-tap availability of incremental assets. Until the new arrangements are able to offer these attributes, it would be amiss to envisage these new channels of lending as significant competition to securitisation.”

Securitisation volume jumped 48% in the first six months of fiscal 2023 and crossed the Rs 75,000 crore mark, indicating continued faith of investors in retail loans amid macroeconomic headwinds.

CRISIL Ratings had, in an earlier press release¹, highlighted the steady collection ratios of securitised pools despite the economic slowdown. With more than 110 originators across asset classes, the market saw increased traction.

Direct assignment (DA) transactions, including mortgage, gold and microfinance loans, accounted for ~62% of the volume (see chart 2). Correspondingly, the share of pass-through certificates (PTCs) declined to 38% from 44% a year ago.

Private (52%) and public sector (23%) banks lapped up most of the loan assets on offer. Several non-banking financial companies (NBFCs) and public sector banks moved gingerly towards PTC structures, while some foreign banks invested in DA transactions.

One PTC transaction comprised loans originated by NBFCs under a co-lending framework with another larger NBFC and securitised by the latter, a first in this segment in India. Small finance banks — large issuers in their previous non-bank avatars — explored a return to the market as issuers.

Nearly a fifth — an unprecedented high — of the PTC transactions in the past three months had a turbo-acceleration proviso, which limits or prohibits outflow from the pool to the originating entity until the investor is fully paid.

To be sure, a number of market participants — banks and NBFCs alike — have reached arrangements under new lending formats such as co-lending. However, its impact on securitisation will likely not be material in the near term till the players get accustomed to these new formats.

Securitisation volume jumped 48% in the first six months of fiscal 2023 and crossed the Rs 75,000 crore mark, indicating continued faith of investors in retail loans amid macroeconomic headwinds.

CRISIL Ratings had, in an earlier press release1, highlighted the steady collection ratios of securitised pools despite the economic slowdown. With more than 110 originators across asset classes, the market saw increased traction.

Direct assignment (DA) transactions, including mortgage, gold and microfinance loans, accounted for ~62% of the volume (see chart 2). Correspondingly, the share of pass-through certificates (PTCs) declined to 38% from 44% a year ago.

Private (52%) and public sector (23%) banks lapped up most of the loan assets on offer. Several non-banking financial companies (NBFCs) and public sector banks moved gingerly towards PTC structures, while some foreign banks invested in DA transactions.

One PTC transaction comprised loans originated by NBFCs under a co-lending framework with another larger NBFC and securitised by the latter, a first in this segment in India. Small finance banks — large issuers in their previous non-bank avatars — explored a return to the market as issuers.

Nearly a fifth — an unprecedented high — of the PTC transactions in the past three months had a turbo-acceleration proviso, which limits or prohibits outflow from the pool to the originating entity until the investor is fully paid.

To be sure, a number of market participants — banks and NBFCs alike — have reached arrangements under new lending formats such as co-lending. However, its impact on securitisation will likely not be material in the near term till the players get accustomed to these new formats.

CRISIL Ratings had, in an earlier press release¹, highlighted the steady collection ratios of securitised pools despite the economic slowdown. With more than 110 originators across asset classes, the market saw increased traction.