Retail Asset Securitisation Crosses Rs 1 Lakh Cr In H1 FY24: CareEdge Report
The cumulative volume for securitisation for H1 FY24 has surpassed Rs 1,00,000 crore, as estimated by CARE Ratings. The securitisation market had a strong start in the current fiscal year, with a total volume of Rs 55,000 crore in Q1FY24.
The total securitisation market volume for H1 FY24 reached approximately Rs 1.01 lakh crore, marking a substantial 40 per cent increase compared to the same period in FY23 (Rs 72,000 crore). The figure includes both pass-through certificate (PTC) issuances and direct assignment (DA) transactions standing at Rs 51,000 crore and Rs 50,000 crore respectively.
The growth has been primarily driven by robust credit expansion and a sustained demand for loans that meet Priority Sector Lending (PSL) norms.
Traditionally, DA transactions have dominated the overall volumes. However, due to the merger of the HDFC entities, DA volumes have seen a decline. For the first time, the share of DA transactions in the overall volumes stood at approximately 49 per cent in H1FY24, the report states.
This anticipated economic expansion is expected to influence consumer spending patterns positively, with the festive season likely to witness healthy demand, thereby boosting credit growth, the report highlights.
Over the last two quarters, there has also been a noticeable increase in the volume of transactions backed by unsecured loans, both in the PTC and DA categories, CareEdge report pointed out.
Mortgage-backed securitisation (MBS) transactions comprised 44 per cent of DAs with Asset-backed securitisation (ABS) and microfinance (MFI) loan transactions constituting around 35 per cent and 21 per cent of the DA volumes, respectively. The PTC volumes were driven by ABS pools constituting approximately 70 per cent of the total PTC issuances.
What is asset securitisation?
Asset Securitisation is the process of taking an illiquid asset or group of assets and through financial engineering, transforming it (or them) into an investable security.
A mortgage-backed security (MBS) is a classic example of securitisation. A group of home loans are sold by the original lender to another financial institution, which turns the package of mortgages into one distinct unit that the public can invest in.
Investors are then paid the interest and principal payments from these various mortgages as if they were the bank lending these different homeowners money.
According to Sriram Rajagopalan, Associate Director at CARE Ratings, “If the trend observed in H1FY24 continues at its current pace, the securitisation market is poised to achieve record-breaking annual volumes in FY24.
This optimism is underpinned by the anticipation of a strong GDP growth rate exceeding 6 per cent, as indicated by various estimates, which will serve as a catalyst for sustained growth in the Indian securitisation market.”
CARE Ratings report anticipates that the robust upward trajectory in the securitisation market's volume will persist and potentially gain further momentum during the last quarter of the fiscal year.
