Banks take securitisation route for liquidity, lower credit deposit ratio

Rating agency ICRA estimates Rs 45,000 crore to Rs 50,000 worth of securitisation and direct assignment deals in the July-Sep quarter

With banks finding it challenging to raise deposits amid strong loan offtake, they are taking the securitisation route to improve their liquidity position. Rating agency ICRA estimates Rs 45,000 crore to Rs 50,000 crore worth of securitisation and direct assignment deals in the July-Sep quarter (Q2FY25).

Country’s largest private lender HDFC Bank will securitise a pool of new car loans worth Rs 9,062 crore through three separate deals involving Pass Through Certificates (PTCs) with maturity between two and six years as a step to generate liquidity. The deal — one of the largest in recent times — will also help the lender to address the credit-deposit (CD) rate, which moved up over 100 per cent after it merged HDFC Ltd last year.

According to data compiled by CRISIL, as compared to Rs 10,000 crore worth of securitisation in FY24, which was mostly by small finance banks, the first quarter of the current financial year (Q1FY25) saw deals worth Rs 8,500 crore, mostly by large private sector banks. Overall securitisation volumes, including non-banking financial companies (NBFCs), were Rs 45,000 crore in Q1FY25, which is 17 per cent increase year-on-year (Y-o-Y) on a like-to-like basis (taking into account the merger of HDFC and HDFC Bank and regulatory measures on gold loans), CRISIL said.

“With deposit growth continuing to lag credit growth, banks are scouting for additional avenues for raising funds. Securitisation can be an efficient funding avenue for banks, without attracting incremental cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements,” said Ajit Velonie, senior director, CRISIL Ratings.

“We are likely to see more banks, especially those with higher CD ratios, evaluate securitisation in the near-to-medium term,” Velonie added.

According to bankers, securitisation is an efficient funding for banks as the advantage is that the asset goes off the balance sheet, which helps to contain the CD ratio.

According to Abhishek Dafria, group head, Structured Finance Ratings, ICRA, a few banks have begun groundwork on securitisation for generating liquidity. “This time, high CD ratio is driving the activity of direct assignment — sale of loans — and issuance of PTCs for parcel of loans. The securitisation — direct assignment plus PTC securities — volumes are expected to be Rs 45,000-50,000 crore in the quarter.”

Rating agencies expect securitisation to pick up during the last fortnight of the quarter.

“There are still 10 days to go this month and most of the volumes will happen in this period. A clear picture will emerge in the first week of October 2024,” Dafria added.