ICRA estimates that securitisation volumes, originated largely by non-banking financial companies (NBFCs) and housing finance companies (HFCs), at ~Rs. 61,000 crore in Q4 FY2023, the highest quarterly volumes seen since the onset of the Covid-19 pandemic. The volumes for the quarter are largely dominated by securitisation of retail loans (~90%). The overall securitisation volumes in FY2023 stood at ~Rs. 1,78,000 crore, i.e. a healthy 41% expansion over Rs. 1,26,500 crore seen in FY2022.
Mr. Abhishek Dafria, Vice President and Group Head - Structured Finance Ratings at ICRA, said: "The upward trend in the securitisation volumes continued for another quarter as NBFCs and HFCs witnessed increase in funding requirements to meet the growing credit demand. Overall securitisation volumes for FY2023 remained marginally higher at Rs 1.8 trillion than our earlier estimates of Rs. 1.7 trillion. The rising interest rates over the past year have not yet materially dampened the credit demand. With the Monetary Policy Committee (MPC) keeping the repo rate unchanged in the recent meeting, we expect the disbursement trends for NBFCs and HFCs to remain healthy over the near term, which will support the growth in the securitisation market across all asset classes. Nonetheless, the macro-economic conditions remain a monitorable as global economies continue to manage high inflationary pressures."
In FY2023, Mortgage-backed (MBS) loans formed the biggest chunk of the overall volumes at ~33%, followed by vehicle loans at ~28%. Microfinance loans have made a huge comeback accounting for ~20% and ~18% of Q4 FY2023 and full year FY2023 volumes, respectively. Securitisation is carried out either through direct assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) or through the pass-through certificate (PTC) route (instruments issued by bankruptcy remote trusts). In FY2023, the share of PTC was ~40% in retail securitisation which is largely in line with the historical trends. Securitisation of personal loans has remained strong throughout the year accounting for 3% of the total volumes.
Added Mr. Dafria: "The share of MFI loan securitisation has significantly improved to ~20% of total volumes securitised in Q4 FY2023. Securitisation market in India is gradually becoming more broad-based with asset classes like personal loans, education loans and school finance loans also gaining traction. In particular, securitisation of personal loans remained strong throughout the year accounting for 3% of the total volumes. Securitisation would 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 expected to remain buoyant in FY2024 as well, though the overall volumes could see a decline of ~15-20% due to the impending merger of a large HFC with a bank post, which it is unlikely to carry out loan sell-downs."