Securitisation¹ issuance volume crossed the Rs 50,000 crore mark in the fourth quarter, which hoisted the fiscal 2024 aggregate to the all-time high of Rs 1.9 lakh crore scaled in fiscals 2019 and 2020 (see chart 1). Back then, volume was partly supported by policy interventions including partial credit guarantee schemes offered by the Government of India to non-banking finance companies² (NBFCs).

Issuance diversity continues to increase with 165 originators logging ~1,100 securitisation transactions in fiscal 2024, compared with 160 originators and ~1,000 transactions in fiscal 2023.

The step up in market activity more than compensated for the loss of volume due to the exit of a large housing finance company (HFC) originator from the market after its merger with a bank in the second quarter of fiscal 2024. It had accounted for ~23% of the volume in fiscal 2023. While the overall market grew over 5%, adjusted for the large HFC’s volume, growth was ~27%.

Says Ajit Velonie, Senior Director, CRISIL Ratings, “Reaching all-time highs despite the exit of a large HFC underscores the organic growth momentum in the securitisation space. We foresee this trend continuing as NBFCs look to diversify their funding avenues after new regulations increased risk weights for bank lending to them.”

Vehicle loan securitisation cornered the highest market share in fiscal 2024 (43% versus 31% in fiscal 2023). Microfinance accounted for 16% against 15%, contribution of business loan securitisation more than doubled to 11% from 5% and personal loan securitisation was 5% versus 4%. The volume mix is expected to gravitate towards these asset classes in fiscal 2025, given high expectations of credit growth and recent regulatory/corporate actions affecting gold loan and mortgage securitisation.

The share of mortgage-backed securitisation fell to 17% from 33% in fiscal 2023. Gold loan securitisation share also declined - to 6% from 7% in fiscal 2023 (see chart 2).

The split between pass-through certificates (PTCs) and direct assignments (DAs) saw significant changes last fiscal, in line with the shifts in asset class mix. PTCs increased their share to ~57% against ~40% between fiscals 2021 and 2023, while DAs accounted for the rest 43% (see chart 3).

The share of DA should further come down in fiscal 2025 due to the expected reduction in gold loan and mortgage securitisations as well as rise in co-lending arrangements. PTCs are expected to increase their share further given the relatively higher share envisaged for vehicle loan, microfinance, business loan and personal loan securitisation that is expected to drive market growth going forward (see chart 4).

Among investor groups, banks continued to dominate the market, with private sector ones accounting for 41% of volume, public sector 28% and foreign 20%. Private sector and foreign banks continue to favour PTCs, while public sector ones predominantly acquire pools via the DA route.

NBFC investors accounted for 8% of volume. The market also saw participation from other investors such as mutual funds (in PTCs backed by secured vehicle and business loans), insurance companies (in mortgage-backed PTCs) and alternate investment funds (in PTCs across various asset classes).

Replenishment structures are finding wider acceptance, accounting for ~Rs 6,000 crore of PTCs last fiscal driven by potential for investors to lock into fixed interest rates for longer tenures, while enabling larger issuances backed by stable disbursement pipelines and better asset-liability maturity management for originators.

Another key trend that emerged, which could have a positive impact on the volume going forward, is the increasing volume of securitisation originated by banks. Originators were primarily small finance banks and recent quarters have seen entry of private sector banks, too. Bank-originated volumes grew over 50% to Rs 10,000 crore in fiscal 2024, compared with Rs 6,600 crore in fiscal 2023.

Says Wazeem Aboobacker, Associate Director, CRISIL Ratings, “With deposit growth continuing to lag credit growth, banks are scouting for additional avenues for raising funds. Securitisation can be an efficient funding avenue for banks, without attracting incremental cash reserve ratio and statutory liquidity ratio requirements. We are likely to see more banks, especially those with higher credit-deposit ratios, evaluate securitisation in the near to medium term.”

¹ Refers to structured finance transactions including pass-through certificates and direct assignment transactions.
² NBFCs refer to non-bank finance companies, including housing finance companies (HFCs) and microfinance institutions (NBFC-MFIs), but exclude government-owned NBFCs