Securitisation volumes jump to pre-pandemic levels in FY24, may cross Rs 2 lakh crore this fiscal

Securitisation

The volumes in the securitisation market have surged to the pre-pandemic levels in FY24, according to the rating agency ICRA data.

As per the data, securitisation volumes stood at Rs 1.92 lakh crore in FY24 as compared to Rs 1.81 lakh crore a year ago, which is over 6 percent growth.

Experts attributed this to higher demand from banks to comply with the requirements of priority sector lending (PSL) and the compulsion of non-banking finance companies (NBFCs) to broad-base their liabilities program especially after the RBI increased risk weights for bank loans to NBFCs in November 2023.

“Increase in disbursement levels by the NBFCs; need to raise funds through multiple avenues; better awareness of the securitisation market among stakeholders; PSL benefit available for banks if the underlying borrowers qualify as PSL,” said Abhishek Dafria, Senior Vice President and Group Head, Structured Finance, ICRA, explaining the reason behind the surge.

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.

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In FY23, securitisation volumes stood at Rs 1.81 lakh crore, in FY22 it was at Rs 1.27 lakh crore, dipped to a 5-year low of Rs 87,300 crore in FY21 during the peak of the Covid-19 pandemic, and Rs 1.97 lakh crore in FY20, data showed.

“Resource diversification is now a key agenda for NBFCs as well as banks. With banks now maintaining higher risk weights on credit exposure to NBFCs, availability of bank funding at optimal cost will be a key monitorable for NBFCs, making it imperative for them to diversify their resource raising beyond bank loans,” said Ajit Velonie, Senior Director, CRISIL in a release released on July 8.

Historically, the securitisation market has been a good avenue of funding for NBFCs considering the liquidity in the market and better awareness among stakeholders. Now with the asset quality of NBFCs holding up, it is further adding to the demand for securitisation.

That said, for banks, while PSL is a key reason for participation in the securitisation market, non-PSL securitisation is also on the rise on the back of better yields, Dafria said.

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Last year, the central bank increased the risk weights on consumer credit exposure of commercial banks and NBFCs by 25 percent.

Going ahead, Dafria expects securitisation volumes to grow to Rs 2-2.10 lakh crore in FY25.

As per a CRISIL report, Securitisation volume rose to Rs 45,000 crore in Q1 FY25, marking around 17 percent year-on-year growth.