Robust loan collections and high credit growth at non-bank lenders led to 60 per cent jump in securitization volumes to Rs 55,000 crore in June quarter, a report said on Monday.
This is the highest ever in the first quarter of a fiscal, rating agency Crisil said, attributing the growth to high demand from banks and non-bank finance companies (NBFCs) resorting to securitization as a funding route.
Securitisation refers to an activity where a financier or lender transfers future receivables on a loan or a bunch of loans to other financiers which helps with immediate liquidity requirements.
During the first quarter, the number of transactions went up to over 250 from 160 in the year-ago period, it said, adding that private and public sector banks continued to be the dominant investors, followed by foreign banks.
There were 80 originators and 50 investors which were active during the quarter, the agency said.
“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,” its senior director and chief ratings officer, Krishnan Sitaraman, said.
He also exuded confidence that the annual securitization volumes will exceed the previous peak of Rs 1.9 lakh crore in FY24. There was a 9 percentage point increase in the share of vehicle loan securitisation (including commercial vehicles and two-wheelers) in the first quarter volumes to 37 per cent, primarily driven by the top originators in the commercial vehicle segment that have relied on securitisation as an alternative funding tool to support their strong credit growth.
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 13 percentage points to 34 per cent, it said, adding that microfinance securitisation cornered 10 per cent and gold loans 8 per cent.
Share of direct assignment (DA) transactions fell to 50 per cent, compared with 55-65 per cent in the past three fiscals on account of the drop in the share of MBS, which are largely undertaken via the DA route.
So far, DAs have largely been dominated by mortgages and gold loans given the relatively higher safety in these asset classes, while pass-through certificates (PTCs) found greater acceptance in the vehicle, microfinance and unsecured loan segments, it said.
Foreign banks focused on investing in PTCs, public sector banks preferred DA pools and private sector banks invested in a mix of DAs (mostly mortgage and gold loan pools) and PTCs, the agency said.
The HDFC merger with HDFC Bank is also expected to have an impact on the securitization market, the agency said, expecting the share of mortgages and DA in securitisation volume to reduce further, given the merger of a large originator in the housing finance space with a bank.
Hence, the share of PTCs will further improve. “PTCs have facilitated cautious entry for investors into new originators and asset classes, given the presence of credit enhancement, which increases investor protection,” its director Ajit Velonie said.