Crisil: Securitization Volumes Increased by 60% to Rs. 55,000 Cr. in Q1

According to a study released on Monday, strong loan collections and rapid credit expansion by non-bank lenders drove a 60% increase in securitization volumes to Rs 55,000 crore in the June quarter.

According to rating agency Crisil, this is the greatest amount ever for the first quarter of a fiscal year. The agency attributes the increase to the strong demand from banks and non-bank financing firms (NBFCs) which use securitization as a source of funding.

Securitization is the process through which a financier or lender transfers future receivables on one or more loans to other financiers in order to meet short-term liquidity needs.

It said that private and public sector banks remained to be the major investors, followed by international banks. During the first quarter, the number of transactions increased to over 250 from 160 in the same period the previous year.

According to the agency, there were 50 investors and 80 originators that were active throughout the quarter.

Securitization, according to its senior director and chief ratings officer Krishnan Sitaraman, “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.”

He also gave off the impression that he was confident that securitization volumes will surpass their previous high of Rs 1.9 lakh crore in FY24. The top originators in the commercial vehicle segment, who have relied on securitization as an alternative funding tool to support their strong credit growth, were primarily responsible for the increase in the share of vehicle loan securitization (including commercial vehicles and two-wheelers) to 37% in the first quarter volumes.

According to the report, this increase, together with ongoing momentum in other asset classes, has caused a relative drop in the share of retail mortgage-backed securitization (MBS) of 13 percentage points to 34%. Microfinance securitization and gold loans each held 8% of the market.

Due to the decline in MBS, the majority of which are executed through the direct assignment (DA) channel, the percentage of DA transactions declined to 50% from 55–65% in the previous three fiscal years.

Given the relative higher safety of these asset classes, mortgages and gold loans have so far dominated DAs, according to the report. Pass-through certificates (PTCs) have, on the other hand, gained more favor in the automobile, microfinance, and unsecured loan categories.

According to the agency, private sector banks engaged in a combination of DAs (mostly mortgage and gold loan pools) and PTCs, while public sector banks favoured DA pools. Foreign banks concentrated on investing in PTCs.

The HDFC-HDFC Bank merger is also anticipated to have an effect on the securitization market, according to the agency, which anticipates a further decline in the proportion of mortgages and debt obligations in securitization volume in light of the merging of a significant originator in the housing finance industry with a bank.

As a result, the percentage of PTCs will increase. Given the existence of credit enhancement, which strengthens investor protection, PTCs have enabled cautious entrance for investors into new originators and asset classes, according to its director Ajit Velonie.