Securitisation volumes will sustain their growth momentum in 2024-25(April-March) with the entry of originators, diverse structures and increasing acceptance for replenishment structures, India Ratings and Research said in a report.
Additionally, growth in the gross domestic product and business activities will aid securitisation volumes in the current financial year.
Securitisation is a process wherein assets like home loans, auto loans, microfinance loans, and credit card debt are pooled and repackaged as interest-bearing securities.
Securitisation volumes 3% year-on-year(y-o-y) to around Rs 1.8 trillion in 2023-24 as Housing Development Finance Corporation(HDFC) exit from the direct assignment market was filled by an increase in PTC issuances by existing and new originators. This led to an over 40% y-o-y rise in PTC volumes.
The volume of PTC volumes rose substantially on the back of varied structures including time-tranching, part principal promised among others to suit investors requirements.
The rating agency highlighted that there was a change in the dynamics of securitisation transactions in 2023-24, with PTC volumes dominating the market share at 57%. This is a reversal of the trends seen in the previous years.
A PTC is a certificate that is given to an investor against certain mortgaged-backed securities that lie with the issuer. There was an uptick in the issuance of transactions carrying replenishment structures for loan pools backed by vehicles and unsecured businesses, with replenishment periods of 6-12 months.
“Although the overall volumes in FY24 remained in a similar range compared to FY23, the market’s ability to absorb the gap created by HDFC Ltd proved the growth trend,” Jatin Nanaware, Senior Director, Structured Finance, India Ratings and Research said.
“With National Housing Bank’s initiative, we expect a revival in the RMBS segment as well,” he added.
In the current financial year, volumes would be primarily driven by the priority sector lending requirements followed by the entry of issuers looking for alternative funding sources and investors preferring varied asset class exposure.
The rating agency expects securitisation of pools originated through co-lending arrangements to support the growth. Further, the establishment of RMBS Development Company by National Housing Bank will lead the revival of the retail mortgage-backed securities as an asset class.