Securitisation volume soars 60% to Rs 53,000 cr in Q1, may slow down going forward on HDFC exit

In the first quarter of FY23, the volume stood at a low of Rs 33,000 crore and for the full year, it stood at Rs 1,80,000 crore in FY23,

High credit growth and favourable macroeconomic conditions have buoyed the securitisation volume by a full 60 percent on-year to Rs 53,000 crore during the first quarter, and is likely to touch Rs 1,90,000 crore by March, despite the exit of HDFC, says a report. However, volumes will be impacted in the subsequent quarters due to the exit of HDFC following its merger with HDFC Bank, Icra Ratings said in a report.

In the first quarter of FY23, the volume stood at a low of Rs 33,000 crore and for the full year, it stood at Rs 1,80,000 crore in FY23, which was close to the pre-pandemic level. Securitisation is primarily originated by non-banking financial companies and housing finance companies and the volumes, combining both direct assignments as well as pass-through certificates, have been growing after the pandemic. And banks continue to depend on securitization as a means to raise funds as it helps in diversifying their fund-raising avenues.

According to Abhishek Dafria, a senior vice-president of Icra, the buoyancy in the securitisation market has continued in the first quarter. Despite the rise in interest rates over the past year, retail credit demand has been strong, resulting in increased financing requirements for non-bank and housing financiers. In spite of the exit of the largest player that HDFC was from the securitization space, the agency is optimistic on the growth prospects of the market and foresees the overall market to grow to Rs 1,90,000 crore by March, propelled by an increase in volumes from the existing originators as well as emergence of new originators.

Historically, mortgage-backed loans account for the largest share of the overall securitization volume at around 40 percent, followed by vehicle loans and microfinance loans. In Q1, mortgage-backed loans again accounted for a third of the total volumes. HDFC, which has been the single largest originator over the past few years, was the top originator in Q1. But its reverse merger effective July 1 with its own banking subsidiary, there will not be any loan sell-down now.

As a result, the share of mortgage-backed loans is expected to come down to 20 to 25 percent of the total volumes, says the report adding this will have vehicle loans becoming the largest asset class in the securitization space as strong construction and mining activities will drive loan volume growth in the near term.