The financial year 2023-24 (FY24) saw a significant change in the dynamics of securitisation transactions in India. Pass-through certificate (PTC) volumes dominated the market share, accounting for 57 per cent of the market.
This was a reversal of the trend seen in previous years. Despite this shift, the overall growth volumes remained stable and increased by 3 per cent year-on-year (YoY), totalling above Rs 1.8 lakh crore.
This was due to an increase in PTC issuances by existing and new originators, which filled the gap created by the exit of one of the largest players from the direct assignment market. This increase contributed to over 40 per cent YoY growth in PTC volumes.
“We expect the growth momentum to continue in FY25 with the entry of originators, diverse structures and increasing acceptance for replenishment structures. Although the overall volumes in FY24 remained in a similar range compared to FY23, the market’s ability to absorb the gap created by HDFC proved the growth trend.
The market witnessed 25 per cent quarter-on-quarter growth in Q4 FY24. Furthermore, with the National Housing Bank’s initiative, we expect a revival in the Residential Mortgage-Backed Securities (RMBS) segment as well,” says Jatin Nanaware, Senior Director, Structured Finance, Ind-Ra.
The retail asset secondary market volume, including pass-through certificate (PTC) issuance and direct assignment transactions, for FY24 reached a record high of Rs 2,05,000 crore (as estimated by CareEdge Ratings), representing a growth of approximately 17 per cent compared to FY23.
However, the volume in the last quarter could have been higher if not for the preference for balance sheet lending and a mismatch in pricing expectations between originators and buyers.
The merger of the HDFC entities also contributed to a drop in volume, which in turn impacted the market growth. In FY24, around 40 new originators entered the securitisation market. Historically, the last quarter has always witnessed the highest volumes, and FY24 was no different.
“We predicted the market in FY24 to cross Rs 2 lakh crore to achieve an all-time high market volume. The resilient performance of securitisation transactions and the preference of banks to grow retail assets / meet priority sector lending norms ensured the market crossed Rs 2 lakh crore.
We expect a higher level of activity in the RMBS space in this financial year. CareEdge Ratings expects the market momentum to continue in FY25,” said Vineet Jain, Senior Director at CareEdge Ratings.
Icra estimates that in FY24, the total securitisation volumes originated mainly by financial institutions were about Rs 1.88 lakh crore, which is in line with Icra's projections for the year.
In Q4 FY24, securitisation volumes witnessed a healthy growth of 26 per cent over the preceding quarter, rising to about Rs 48,000 crore. However, the volumes were much lower compared to Q4 FY23, when securitisation had reached about Rs 63,000 crore.
In Q4 FY24, securitisation volumes witnessed a healthy growth of 26 per cent over the preceding quarter, rising to about Rs 48,000 crore. However, the volumes were much lower compared to Q4 FY23, when securitisation had reached about Rs 63,000 crore. Ten per cent of the latter in volume terms was attributed to wholesale loan securitisation, which has not been repeated subsequently.
Despite the exit of HDFC, which was the largest originator of the previous year, following the entity's merger with HDFC bank, the overall annual volumes for FY24 grew by about 4 per cent YoY.
Abhishek Dafria, Senior Vice President and Group Head, Structured Finance Ratings, Icra said, “We witnessed a sharp increase in securitisation by small finance banks as well as initial steps taken by a few private sector banks in this space to support their portfolio growth, given the recent challenges in deposit growth rates.
If similar trends continue, Icra projects the volumes to comfortably cross Rs 2 lakh crore in FY25. Nonetheless, the increasing share of co-lending by non-banking finance companies and housing finance companies would challenge the growth in the securitisation market. However, at this juncture, we expect an increase in both forms of funding.”
