Securitisation volumes surged by more than 60 per cent year-on-year to touch Rs 53,000 crore in the first quarter ending June 2023, fuelled by high credit growth and favourable macroeconomic conditions, according to rating agency ICRA.

Securitisation involves pooling of loans and selling them to a special purpose entity, so that a lender gets liquidity upfront on the assets it has originated.

Predominantly non-banking finance companies and housing finance firms have securitised loans worth Rs 33,000 crore in April-June 2022.

“The buoyancy in the securitisation market has continued in the first quarter of the current fiscal. Despite the rise in interest rates over the past year, the retail credit demand in the country remained strong, resulting in increased financing requirements for the NBFCs and HFCs,” said Abhishek Dafria, group head, Structured Finance Ratings, ICRA.

Lenders continue to depend on securitisation to raise funds as it helps in diversifying their fund-raising avenues.

“In spite of the exit of HDFC from the securitisation space post its merger, we remain optimistic on the growth prospects of the market,” Dafria said.

The overall market is expected to grow to a level of Rs 1.9 trillion in the current year, propelled by an increase in volumes from the existing originators as well as emergence of new originators. In FY23, volumes touched Rs 1.8 trillion, up from Rs 1.27 trillion in FY22 and Rs 87,000 crore in FY21.

Historically, mortgage-backed loans had the largest share of 30-40 per cent in overall securitisation volumes, followed by vehicle loans and microfinance loans. 

HDFC continued to be the top originator in Q1 FY2024. However, following its merger with HDFC Bank, it is unlikely to carry out any further loan sell-down. As a result, the share of mortgage-backed loans is expected to be reduced to 20-25 per cent of the total volumes.

Meanwhile, vehicle loans are expected to become the largest asset class in the securitisation space as strong construction and mining activities would drive loan volume growth in the near term.