Securitisation volume growth slows to 4% in FY24 on HDFC merger: ICRA

In a report, the agency said it expects the volume of securitisation - where a lender typically transfers the future receivables on a loan asset against upfront payment - to cross Rs 2 trn in FY25

The overall securitisation volume growth slowed to 4 per cent in FY24 to Rs 1.88 trillion due to the impact of the HDFC twins merger, domestic rating agency ICRA said on Thursday.

In FY23, the securitisation volume had grown by 33 per cent to Rs 1.80 trillion, and mortgage major HDFC was the biggest originator.

In a report, the agency said it expects the volume of securitisation - where a lender typically transfers the future receivables on a loan asset against upfront payment - to cross Rs 2 trillion in FY25.

"The increasing share of co-lending by NBFCs (non-bank finance companies) and HFCs (housing finance companies) would challenge the growth in the securitisation market, though at this juncture we expect an increase in both forms of funding," ICRA's group head for structured finance ratings Abhishek Dafria said.

He added that if HDFC is excluded, the securitisation volumes grew 25 per cent during the fiscal year.

"The increase in volumes was driven by both existing large originators, who securitised higher volumes during the year, and new originators. We witnessed a sharp increase in securitisation by small finance banks as well as initial steps taken by a few private sector banks in this space to support their portfolio growth, given the recent challenges in deposit growth rates," he said.

The share of pass-through certificates (PTCs) rose to 57 per cent of the market for FY24 against 40 per cent observed in the past couple of years, mainly due to the exit of HDFC, which sold mortgage loans through the direct assignment (DA) route.

Vehicle loans continue to form the biggest asset class in PTC issuances, whereas microfinance and mortgage loans are largely securitised through DAs, it said.

Small business loans and personal loans have been consistently increasing their participation in the market, while the current proportion remains relatively lower in the overall volumes, it said.

The agency said it saw a rise in securitisation volume originated by non-financial sector entities, where trade receivables and lease rentals are being securitised, thus helping in widening and diversifying the PTC market in the future.