Led by strong demand for retail assets from banks coupled with increased use of securitisation as an alternative funding route by NBFCs, securitisation volume increased by ~60 per cent on-year to Rs 55,000 crore this April-June quarter, CRISIL Ratings said in a report. This is the highest ever in a fiscal first quarter. Securitisation of loans is a process through which financial institutions like banks and NBFCs combine their financial assets to form a consolidated instrument which is then issued to the investors.
The participation demographic continued to be broad-based like last fiscal, with over 80 originators and 50 investors, the report said, adding that private and public sector banks continued to be the dominant investors, followed by foreign banks. The number of transactions have gone up from ~160 in the first quarter of FY2023 to over 250.
“Securitisation is allowing banks to do two things: keep driving their credit growth without impacting their direct exposure limits to NBFC balance sheets, and diversify exposure to granular retail loans, which are showing robust collection performance, said Krishnan Sitaraman, Senior Director & Chief Ratings Officer, CRISIL Ratings. “With the momentum in NBFC credit growth and investor interest in retail loan pools, annual securitisation volume can exceed the previous peak of Rs 1.9 lakh crore this fiscal,” he added.
The share of vehicle loan securitisation, which included commercial vehicles and two-wheelers, in the overall first quarter volume surged 900 basis points to ~37 per cent, on top originators, primarily driven by the top originators in the commercial vehicle segment. “This rise, along with continued momentum in other asset classes, has led to a relative decline in the share of retail mortgage-backed securitisation (MBS) by 1,300 basis points to ~34 per cent in the first quarter,” the report said. Meanwhile, microfinance securitisation cornered 10 per cent and gold loans 8 per cent of the market. The share of direct assignment (DA) transactions dropped ~50 per cent due to a drop in the share of MBS.
The report stated that among investors, while foreign banks focused on investing in PTCs, public sector banks preferred DA pools, private sector banks invested in a mix of DAs and PTCs.
“PTCs have facilitated cautious entry for investors into new originators and asset classes, given the presence of credit enhancement, which increases investor protection. PTCs also offer structuring flexibility that enables better alignment of issuances with investor needs,” said Ajit Velonie, Senior Director, CRISIL Ratings.