Securitisation volumes jump 70% to Rs 35,000 cr in Q1: CRISIL report

Securitisation volumes increased 70 per cent to Rs 35,000 crore in the April–June quarter (Q1FY23) of FY23, aided by economic activity picking up and the low base of last year, said a report by rating agency CRISIL on Thursday.

The Reserve Bank of India defines securitisation as transactions where credit risks in assets are redistributed by repackaging them into tradable securities. In Q1FY22, securitisation volumes of Rs 20,000 crore was reported as volumes took a hit due to the second wave of the pandemic.

Volumes could have been higher in Q1FY23 if not for high inflation and higher interest rates that raised doubts in the minds of the investors regarding the repayment capability of borrowers.

“Despite the apparent return of enthusiasm among participants, a number of deals fell through at the quarter-end. Still, negligible disruption in collections and stable pool performance supported uptick in volume”, said CRISIL.

"More than 80 non-bank entities being present in the market in the first quarter, up from (around) 50 last fiscal, indicates strong comfort originators have with the securitisation process. Market activity in the past quarter also reflected the diversity of various asset classes across secured and unsecured loan categories,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, at CRISIL.

State-owned and private sector banks were the largest investors driven by their retail drive and PSL targets. They invested more than two-thirds of the quarterly securitised volume. Foreign financial institutions, including banks, acquired around 17 per cent of all assets securitised.

“Until now, banks were the dominant investors in securitisation. Others, including foreign investors, may be drawn by the stable performance of past pools and be willing to experiment with innovative structures and newer asset classes”, said Rohit Inamdar, senior director at CRISIL Ratings.

Of the Rs 35,000 crore securitisation volume, around 45 per cent was mortgage-backed securitisation (MBS) and the rest was asset-backed securitisation. ABS comprised 49 per cent commercial vehicle loans, 20 per cent of microfinance loans, and 14 per cent of gold loans. Two-wheeler, education, school finance and unsecured loans saw renewed investor interest.

Also, the direct assignment route saw 60 per cent of the overall volumes of securitisation while pass through certificate issuances fell to 40 per cent from 48 per cent during the same period last year.

CRISIL estimates that securitisation market volumes may reach near pre-pandemic highs of Rs 1.9 trillion (touched in FY19 & FY20) once the macro-situation and interest rates stabilise. Securitisation may also become a key funding source for non-banks who are looking to grow their loan book and simultaneously it can also be an attractive investment avenue for banks looking to grow their retail assets.

However, any sharp rise in interest rates, high inflation and future waves of the pandemic and their impact on economic activity will be key variables which could be potential headwinds for securitisation volumes this fiscal, the rating agency said.