A trillion-rupee market

In fiscal 2017, securitization transactions in India hit a lifetime high of Rs 102,500 crore, recording a growth of ~47% over fiscal 2016. The sharp rise in volume was driven by changes in underlying market dynamics. There was clarity on distribution tax, which meant pass-through certificates (PTCs) were back in vogue, even as a volume in the direct assignment (DA) route continued to be robust. There was increased participation by the treasuries of private sector banks and non-banking finance companies (NBFCs), and the re-entry of mutual funds. That meant investments by public-sector banks (PSBs) shrank to a third of securitization market volume from ~45% a year ago. 

Also, healthy demand for non-priority-sector loans (NPSL) from NBFCs and bank treasuries because of higher yields, till demonetisation affected sentiment. Such transactions constituted a third of the overall volume. Mortgage-backed securities (MBS), the largest asset class, became even bigger with ~45% share of retail securitisation volume, up from ~25% in fiscal 2013. For the first time in five years, a transaction was originated by a bank in a marketplace where NBFCs have been the sole originators. Non-retail securitisation volume scaled a new peak of Rs 12,000 crore with a few large-ticket future-flow and commercial mortgage-backed securities (CMBS) transactions.
 

Cruising past twin headwinds

The securitization transactions rose despite a couple of hiccups like demonetization, which halted deals as investors worried about asset-quality, especially in microfinance and the introduction of priority sector lending certificates (PSLCs), which rapidly gained traction and provided a direct substitute to securitization to meet priority sector lending (PSL) requirements.