The securitisation market is likely to witness a moderation of around 15%-20% in volumes in FY24 after hitting over Rs 1.8 trillion in the previous fiscal, following the merger of Housing Development Finance Corp (HDFC) with HDFC Bank, analysts said.
Said Abhishek Dafria, vice president at ICRA, “Securitisation is expected to remain buoyant in FY24 as well, though overall volumes could see a decline of 15%-20% due to impeding merger of a large HFC with a bank, post which it is unlikely to carry out loan sell-downs.”
This is because HDFC bundles its home loans and sells those to HDFC Bank. During Q3FY23, HDFC assigned loans amounting to Rs 8,892 crore to HDFC Bank. Loans sold in the preceding 12 months amounted to Rs 35,937 crore.
However, Dafria believes that securitisation would continue to remain an important funding tool for retail-focused NBFCs, as it provides funding at an attractive cost, while simultaneously achieving a well-matched ALM position.
Securitisation is the practice of pooling together various types of loan assets and re-packaging them into marketable securities. Generally, banks and large non-bank lenders buy securitised pool of loans directly from non-banking finance companies (NBFCs). There are two kinds of securitisation transactions — direct assignment or DA transactions and pass through certificates (PTC) transactions.
According to a Crisil report issued on Friday, the securitisation market saw Q4FY23 volume cross the Rs 65,000-crore mark, taking the FY23 total to over Rs 1.8 trillion, a tad lower than the previous high of Rs 1.9 trillion in FY19. A total of 160 originators and 110 investors executed 1,000 transactions in FY23, higher than 700 transactions in the previous fiscal.
The report said DA transactions accounted for 58% of securitisation deals in FY23 while PTC issuances comprised the rest. Among asset classes, property-backed loans were the largest segment, accounting for 38% of total volumes, while commercial vehicles accounted for 29%.
“The share of microfinance institutions (MFIs; 15%) in overall securitisation volume doubled to Rs 26,000 crore with 300 pools securitised by 40 originators in fiscal 2023. The share of unsecured (personal and business) loans grew to 10% from 7% in the previous fiscal, driven by higher yields and strong track record of rated pools,” the report said.
Krishnan Sitaraman, senior director and deputy chief ratings officer at Crisil, said four dominant factors have aided the growth of securitisation market — more originators, new investors, emerging asset classes and innovative structures. “These, along with stable pool performance and regulatory clarity, have made this mechanism a streamlined and reliable tool to raise funds.”
Among investor groups, private sector banks had 49% share while public sector banks had 27% share in overall deals. Foreign banks have expanded their share to 11%. “In a departure from past practice, the latter (foreign banks) moved beyond the hallowed ‘AAA’-rated PTCs and stepped cautiously into the ‘AA’ and ‘A’-rated categories for CV and MFI loan-backed PTCs,” it noted.