Securitization volumes jump 80% to Rs 68,000 crore in Q3FY25: ICRA

07 Jan 2025 Evaluate

Domestic rating agency ICRA in its latest report has said that securitization volumes jumped 80 per cent on-year to Rs 68,000 crore in the December quarter (Q3FY25), and has also upped its estimates on total volumes for this financial year (FY25). The financial system is estimated to witness securitization deals, where a lender passes on future receivables to another stakeholder against upfront cash, of around Rs 2.4 lakh crore, up from the previously estimated Rs 2.1 lakh crore. The new estimate represents a 25 per cent increase over the Rs 1.92 lakh crore in FY24.

According to the report, the October-December volumes were similar to the ones observed in July-September (Q2), and participation of private sector banks is helping the volumes and typically it is the non-bank lenders who raise resources through this route. It can be noted that a 'war for deposits' has ensued in the banking system which even led to concerns surrounding the system's ability to find sufficient resources to cater to credit demand, while the merger impact has led HDFC Bank to adopt the securitization route. It said personal loan and unsecured business loans are also facing asset quality stress in the recent quarters and hence, its volumes have been sliding in Q3FY25, adding that it does not expect any material impact on the credit quality of the rated PTC (pass through certificate) transactions. Of the overall securitisation volumes, up to 60 per cent volumes are through the PTC issuances, whereas the remaining share is through direct sell-downs.

The report said the investor preference for the mode of securitisation has remained consistent with public sector banks preferring the direct assignment (DA) route while private sector banks opting more for the PTCs, and added that among the asset classes that are securitised, vehicle loans still dominate the market, given that large banks and NBFCs in this space have been securitising their car loans and commercial vehicle loans portfolio. The growth momentum displayed by the microfinance loans in the first quarter has reduced in subsequent quarters due to the apparent asset quality stress being seen in the industry, leading to lower disbursements and thus lower funding requirements.

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