Securitisation volume jumped 42% on-year and past the Rs 1.15 lakh crore mark in the first nine months of this fiscal as market activity in the quarter ended December continued the momentum witnessed in April to September period.

Activity was broad-based, with wider participation, as the number of originators crossed 120 compared with ~100 in the preceding fiscal. Among new originators in the securitised market were small finance banks that have increased their securitised issuances in recent quarters and added this mechanism as one of their routes to access incremental liquidity.

Growth in the non-mortgage space was led by commercial vehicle (31%) and microfinance (14%) loans. Unsecured loans, including personal and business loans, also continued to draw investor attention, comprising 7% of the securitised assets compared with 3% in fiscal 2022. The share of property-backed loans, though, declined to ~38% from ~43% (see Chart 1).

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “The securitisation market is continuing to regain its mojo post the pandemic, propped up by a resurgence in microfinance and increasing preference among investors for vehicle loans. Additionally, personal and business loans seem to be gaining greater acceptance, bringing diversity to the bouquet of asset classes being securitised.”

Direct assignment (DA) transactions accounted for 60% of the nine-month transaction quantum (see Chart 2), with this route being utilised for sell-down of most mortgage and gold loan pools. Correspondingly, the share of pass-through certificates (PTCs) was at 40%, down marginally from 41% a year ago.

On the investor side, foreign banks and multinational institutions (~14%) were more active, given their preference for investing in PTCs backed by loans advanced to economically weaker sections.

Private (53%) and public sector (PSBs, 25%) banks remained the largest investor groups, while the share of non-banks remained low with mutual funds also making sporadic investments. PSBs have invested in PTC-backed pools comprising vehicle, microfinance, and unsecured business loan receivables in recent quarters.

An increasing number of PTCs continue to be listed on exchanges and activity has seen an uptick in the secondary market, too. While deal arrangers continue to be the first investors in these listed deals, after holding the listed PTCs for a couple of months, these entities have been able to offload the instruments to interested investors like corporate treasuries, high net worth individuals and family wealth office firms.

Track record of past pool performance has been an important factor attracting investor attention. Even as the segment sees greater participation of originators and investors, market activity would continue to be driven by the stability in performance of securitised loans.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “The current fiscal has seen an increase in securitisation volume driven by new asset classes and wider participation from investors, enticed by stable pool performance. Keenness of market participants, including traditional investors, and growing interest for pools comprising new and routine asset classes will likely translate into positive near-term outlook for this segment.”