In the fiscal year 2024-25, securitisation volumes in India surged by 24%, reaching an all-time high of Rs 2.35 lakh crore, according to a report by Crisil. This growth was primarily driven by large deals initiated by private sector banks and non-bank financial companies (NBFCs). However, the fourth quarter experienced a decline in volumes compared to the previous two quarters. The rise in securitisation activity highlights the increased demand for efficient liquidity management solutions, particularly as banks and financial institutions navigate credit-deposit ratio challenges. This article delves into the key factors driving the securitisation market's growth and the shifts in asset class preferences.
Securitisation Volumes Reach Record High in FY25
The total volume of securitisation in FY25 increased by 24%, reaching an impressive Rs 2.35 lakh crore, marking the highest level ever recorded. Securitisation involves the transfer of future receivables from loans to investors, allowing financial institutions to address liquidity needs upfront. This surge in volumes reflects a robust demand for such instruments, driven primarily by large-scale deals from private sector banks and non-bank financial companies (NBFCs), who have increasingly relied on securitisation to manage liquidity.
Despite this overall growth, the fourth quarter saw a dip in volumes, with the total for Q4 coming in at Rs 58,000 crore, a reduction from the Rs 63,000 crore and Rs 70,000 crore recorded in the two preceding quarters. This decline was largely due to seasonality factors and the regulatory environment, yet the overall annual growth remains significant.
Private Sector Banks Drive Growth in Securitisation
A key contributor to the rise in securitisation volumes was the active participation of private sector banks. HDFC Bank, the largest private sector lender in India, was particularly active in issuances during FY25. The bank's efforts were largely driven by the need to improve its credit-deposit ratio, especially following its merger with HDFC, a leading mortgage lender. This strategic use of securitisation allowed HDFC Bank to address liquidity pressures while simultaneously enhancing its financial position.
The report indicates that the number of issuers in the securitisation market increased to 175 in FY25, up from 165 the previous year. This growth in the number of issuers points to increasing market acceptance and reliance on securitisation as a viable financial tool.
Increase in Bank Involvement in Securitisation
Another noteworthy trend is the sharp rise in the share of securitisation attributed to banks. In FY25, the share of securitisation by banks jumped to 26%, a significant increase from just 5% in the previous fiscal year. This shift highlights how some banks have turned to securitisation to manage challenges arising from high credit-deposit ratios, which have put pressure on traditional funding models. This rise in bank participation has also helped compensate for declines in volumes from other sectors like microfinance and gold loans.
Shift in Securitisation by Asset Class
In FY25, the distribution of securitisation volumes across asset classes revealed some important shifts. Vehicle loans, including those for commercial vehicles and two-wheelers, accounted for the largest share of securitisation, representing 47% of the total volume, up from 43% the previous year. This increase can be attributed to the strong demand for financing in the vehicle sector, driven by the country’s growing middle class and rising transportation needs. The share of mortgage-backed loans also saw a notable increase, rising to 22% of total securitisation volumes in FY25, compared to 17% in FY24. This reflects the ongoing strength of the housing market and the continued demand for mortgage financing.
Conversely, gold-loan securitisation saw a dramatic decline, from 6% to just 2%, largely due to the regulatory curb imposed on one of the major gold-loan originators, which was only lifted towards the end of Q2. Similarly, microfinance sector securitisation faced challenges, with its share declining to 11% from 16% the previous year. This decline can be attributed to rising delinquencies and stricter regulatory measures impacting the microfinance sector.
Investor Trends and Securitisation Routes
Among the two primary routes for securitisation, pass-through certificates (PTCs) accounted for 54% of the volume, while direct assignments (DAs) made up the remaining 46%. This indicates a preference for PTCs, which involve the sale of future cash flows to investors, making them an attractive option for financial institutions looking for a flexible and efficient liquidity solution.
Although banks remain the dominant investors in the securitisation market, there has been an increase in the participation of other investors, including mutual funds, insurers, and alternative investment funds (AIFs). While private sector banks continue to invest in both DAs and PTCs, public sector banks have shown a clear preference for the DA route.
Outlook for the Securitisation Market in FY26
Looking ahead, Crisil expects the current momentum in the securitisation market to continue into FY26. The report forecasts that credit growth is likely to pick up for both banks and NBFCs, which will result in sustained reliance on securitisation as an efficient tool for fund-raising. The growing demand for structured finance solutions, coupled with a more favorable macroeconomic environment, is expected to drive further growth in the securitisation market.
Conclusion: A Growing and Evolving Market
In conclusion, the securitisation market in India has seen robust growth in FY25, driven by active participation from private sector banks and non-bank financial companies. While there were fluctuations in asset class performance, key sectors such as vehicle loans and mortgage-backed loans have shown resilience. As investors adapt to changing market conditions and regulatory environments, the securitisation market will continue to evolve, offering valuable funding solutions for financial institutions and contributing to the broader economy’s growth.
With the outlook for FY26 remaining positive, the securitisation market is poised to remain a critical component of India’s financial landscape, providing an essential mechanism for liquidity management and capital raising.
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