The securitisation market saw fourth-quarter volume cross the Rs 65,000 crore mark, which hoisted the full-fiscal 2023 aggregate past Rs 1.8 lakh crore, only a tad lower than the previous high of Rs 1.9 lakh crore in fiscal 2019.

The period also marked the beginning of new trends that will be keenly watched in the current fiscal.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “Four dominant factors have underpinned the recent phase of growth in the securitisation space: more originators, new investors, emerging asset classes, and innovative structures. These, along with stable pool performance and regulatory clarity, have made this mechanism a streamlined and reliable tool to raise funds.”

With ~160 originators and ~110 investors executing ~1,000 transactions in fiscal 2023, the market turned more extensive and diverse. This compares favourably with ~130 originators and ~90 investors participating in ~700 transactions in fiscal 2022. Rising credit growth at non-banks with revival in the economy has seen them ramp up securitisation volumes as it is an important fund mobilisation source for them.

While direct assignment (DA) transactions accounted for 58% of the deals last fiscal, pass-through certificate (PTC) issuances comprised the rest (see chart 1). Among asset classes, property-backed loans were the largest segment (38% of volume), while commercial vehicles (CVs, 29%) also retained a dominant share (see chart 2). The split between PTC and DA transactions varied with asset classes with vehicle loan (including two-wheeler loan) securitisations seeing the maximum proportion of PTCs while share of PTCs was least in gold loan securitisations (see chart 3). A fifth of the DA market was accounted for by bilateral assignment agreements not involving intermediary trustees.

The share of microfinance institutions (MFIs; 15%) in overall securitisation volume doubled to ~Rs 26,000 crore with ~300 pools securitised by ~40 originators in fiscal 2023. The share of unsecured (personal and business) loans grew to 10% from ~7% previous fiscal, driven by higher yields and strong track record of rated pools.

A number of new transaction structures emerged in fiscal 2023, with turbo-amortisation being prominently stipulated across transactions. The turbo-provisions permit payback of dues to the investor at an accelerated pace in the event of excess collections. About 15% of all PTC transactions were executed incorporating this feature.

The market also saw boilerplate securitisation deals recede in the past few months and other trends come to the fore. For instance, volume of mortgage-backed PTCs rose four-fold on-year to ~Rs 4,000 crore last fiscal, driven by investor preference. The underlying pool of one of these comprised loans acquired by the securitising entity through a DA, sold through a PTC to a fresh investor. This is the first such transaction after the Reserve Bank of India issued master directions in September 2021.

Among investor groups, domestic banks, involving both private sector (49%) and public sector (27%) banks, invested in the highest number of deals as a segment, while foreign banks (~11%) expanded their participation. In a departure from past practice, the latter moved beyond the hallowed ‘AAA’-rated PTCs and stepped cautiously into the ‘AA’ and ‘A’-rated categories for CV and MFI loan-backed PTCs.

Another emerging trend was bigger non-bank entities acquiring loans from smaller non-banks. These deals comprised ~7% of the market in fiscal 2023 and may gain greater traction in the months ahead as larger non-banks benefit from the operational efficiencies in such transactions. However, banks, including foreign-owned ones, remained the largest acquirers of DA pools.

As the number of participants rises, we expect the traditional patterns of the securitisation landscape to continue evolving. That could also draw greater interest from and more consistent engagement of hitherto reticent investor groups such as insurance companies, corporate treasuries, and entities with long term investment horizons such as alternative investment funds, provident funds and pension funds.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “The securitisation segment has increasingly opted to alter transaction structures to suit the requirements of investors. Wider adoption of these aspects into structuring could lead to greater participation and diversification of the investor base, thereby positively impacting the overall market.”

What has also supported securitisation volumes are stable collection efficiencies in transactions at an average of 95%-99% across asset classes as well as the regulatory guidelines issued over the last two fiscals providing additional clarity on securitisation transactions to originators and investors alike.