Retail loan securitisation beat pandemic blues, soars 56 per cent to Rs 1.76 lakh crore in FY23

Retail loan securitisations jumped a robust 56 per cent to Rs 1.76 lakh crore in the just concluded fiscal 2023, while that of wholesale rose to around Rs 6,600 crore, coming out of the pandemic blues finally, says a report.

The secondary market for standard retail assets has seen a robust growth of 56 per cent in FY23, reflecting the resilient retail asset pools in the secondary market as well as the preference of banks to grow their retail assets to meet priority sector lending requirements, according to a Care Ratings analysis.

Such robust growth was possible as bank lending to NBFCs grew 32 per cent and there is a positive correlation between interest rate and relative premium for PSL assets.

Both these factors augur well for the securitisation market, the agency said.

"We expect the market to continue to grow but at a moderate pace in FY24," senior directors Sanjay Agarwal and Vineet Jain said in a note.

The total volume, including direct assignment transactions, rose to Rs 176,000 crore from around Rs 1,13,000 crore in FY22, led by direct assignments which constituted around 61 per cent of the total securitisation market with pass-through certificates (PTCs) making up the remaining volume.

The credit quality of retail assets remained resilient, and the total credit growth of banks increased by just over 15 per cent, while bank credit to NBFCs grew by more than twice that rate.

The two main drivers of growth for the securitisation market continue to be the priority sector lending requirement and the need to expand the retail asset book.

The robust growth also shows that the regulatory changes in December 2022 did not have any material impact on the overall volumes except that securitisation volume by fintech lenders were negatively impacted in the second half of the fiscal.

With new originators from universal banks up 30 per cent, small finance banks, NBFCs and HFCs coming to the market, driven by higher demand for retail assets.

DA transactions dominated the market volume and mortgage-backed securitisation transactions comprised the lion's share of it with 50 per cent.

Asset-backed securitisation and microfinance loans constituted around 31 per cent and 19 per cent of the volumes, respectively.

DA transactions grew around 49 per cent, while PTC volumes, mainly driven by ABS pools, contributed around 76 percent of the total PTC issuances, with around Rs 42,500 crore coming from vehicle financing, followed by MFI loans contributing around 13 per cent.

Looking forward, despite the global slowdown, domestic growth and high inflation will drive retail securitisation market in FY24.

The reduction in the volume expected from the culmination of the merger of the HDFC twins and the evolving situation with the growing adoption of the colending model will have a major impact on how the retail securitisation market evolves in the near future.