The securitisation volumes of standard assets for Q3FY25 is expected to reach approximately Rs 68,000 crore, recording a sharp jump of around 80 per cent on-year from Rs 38,000 crore in Q3FY24, stated a report by ICRA. The volume was largely in line with the volume witnessed in the previous quarter. Historically, securitisation of standard assets is done by non-banking financial companies (NBFCs) and housing finance companies (HFCs) in the domestic market. However, this year the entry of a few large private sector banks that have sold part of their loan portfolio through securitisation (i.e. either direct assignment (DA) or via the pass-through certificate (PTC) route) has driven the growth volumes. Per ICRA estimates, the securitisation volume is expected to be at Rs 1.8 trillion for 9M FY2025 against Rs 1.4 trillion in 9M FY2024.
Abhishek Dafria, Senior Vice President and Group Head, Structured Finance Ratings, ICRA, said, “The continued portfolio sell-down by the private banking sector has elevated the overall securitisation volumes in Q3 FY2025. As was seen in the previous quarter, more than one-third of the total securitisation volume has been originated by banks. Securitisation enables the banks to improve on their credit-to-deposit ratio, given that the pace of deposit accretion has been relatively lower than expected in this fiscal.”
“We expect the banks to continue to securitise part of their assets over the near term until the credit-to-deposit ratio reaches acceptable levels. Securitisation further provides an alternate funding means to both banks and the NBFCs and improves the asset-liability position. Nonetheless, securitisation volumes in Q3 FY2025 were affected to some extent by the relatively muted growth in disbursements in the NBFC sector, especially for the unsecured asset classes such as microfinance and personal loans, due to industry headwinds. We, however, have revised our securitisation volumes estimate upwards for FY2025 to Rs 2.4 trillion from the previous estimate of Rs 2.1 trillion, given the continued presence of large-size banks in the market,” he added.
Of the overall securitisation volumes, about 55-60 per cent volumes are through the PTC issuances whereas the remaining share is through direct sell-downs or DAs. The preferred mode of securitisation has remained consistent with public sector banks preferring the DA route while private sector banks opting more for the PTCs. Among the asset classes that are securitised, vehicle loans still dominate the market, given that large banks and NBFCs in this space have been securitising their car loans and commercial vehicle loans portfolio. The growth momentum displayed by the microfinance loans in the first quarter has reduced in subsequent quarters due to the apparent asset quality stress being seen in the industry, leading to lower disbursements and thus lower funding requirements.
Personal loan and unsecured business loans are also facing asset quality stress in the recent quarters and hence, its volumes have been sliding in Q3 FY2025. Nonetheless, given the availability of credit enhancements in PTC transactions and presence of cherry-picked contracts in the securitised loan pools, ICRA does not expect any material impact on the credit quality of the rated PTC transactions.