Retail asset securitisation to increase 12-15% on-year in FY25, say analysts

Securitisation

Retail asset securitisation transactions are likely to increase by 12-15 percent on-year in 2024-25 backed by growth in requirements of the priority sector and residential mortgage-backed securities (RMBS) set up by the National Housing Bank (NHB), the body overseeing housing finance companies, analysts said.

Securitisation is a process where assets like home loans, auto loans, microfinance loans and credit card debt are pooled and repackaged as interest-bearing securities.

“The NHB initiated the RMBS company, so that will also push certain volumes in to the securitisation market in India. Most of the volumes is driven by the growth in the requirement of the priority sector. As the banking book is growing, NBFCs (non-banking financial companies) are also growing, their demand for the PSL (priority sector lending) assets are increasing from the banks perspective,” said Jatin Nanaware, senior director, structured finance, India Ratings.

Adding to this, Vineet Jain, senior director at CareEdge Ratings, said the agency expects a higher level of activity in the RMBS space this financial year.

Retail asset securitisation volumes in the secondary market rose 17 percent on-year to an all-time high of Rs 2.05 lakh crore in 2023-24, according to the CareEdge report dated April 10.

The report further said the merger of the HDFC entities has adversely impacted direct assignments volumes, which constituted 51 percent (around 61 percent in FY23) of the total for FY24. Pass-through certificate (PTC) transactions accounted for the remaining 49 percent (around 39 percent in FY23).

Also read: Fund raising through loan securitisation by SFBs to cross Rs 10,000 crore in FY24: ICRA

Q4FY24 securitisation volumes

In the fourth quarter of  2023-24, securitisation volumes rose 25 percent on a quarterly basis to Rs 47,000 crore, India Ratings said in a report.

PTC volumes grew substantially on the back of varied structures including time-tranching and part principal promised, among others, to suit investors requirements, the report added.

Furthermore, 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 six to 12 months.

India Ratings rated PTC Transactions in Q4FY24 saw growth in the volumes of PTCs backed by unsecured personal loans, and these formed 20 percent of the rated PTCs in this quarter.

Also read: RBI in process of formulating framework for securitization of stressed assets: Governor Das

New originators

Analysts expect that in the current financial year, the number of new originators is likely to rise by 5-10 percent.

“I do not expect new originators will increase exponentially in FY25, but we may see a moderate growth of 5-10 percent new originators in the market,” Nanaware of India Ratings added.

As per the CareEdge report, in FY24, the market witnessed the entry of around 40 new originators.