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FY23 Retail Asset Securitisation Grows 56% to Rs 1.76L cr; Beats Covid Blues

Published: April 11, 2023

“The secondary market for standard retail assets (PTC & DA) has seen a robust growth of 56% in FY23 with total  market volume exceeding ₹1.76 lakh crore. This growth reflects both the resilient performance of retail asset pools  and the preference of banks to grow retail assets & meet priority sector lending (PSL) requirements. Bank lending  to NBFC grew by 32% y-o-y and there is a positive correlation between interest rate and relative premium for PSL  assets. Both these factors augur well for securitisation market. The market has seen one of the largest PSU banks  testing the waters in the pass-through certificate (PTC) market. A few new good quality originators also accessed  the market. We expect the market to continue to grow but at a moderate pace in FY24.”  

– Vineet Jain, Senior Director at CARE Ratings 

Strong Growth of the Securitisation Market 

The market registered a total volume (including direct assignment [DA] transactions) of around ₹176,000 crore  (CARE Ratings estimate) – up from around ₹113,000 crore in FY22. DA transactions dominated the overall volumes  constituting around 61% of the securitisation market with pass-through certificates (PTC) making up the remaining  volume. The split between DA and PTC transactions has largely remained unchanged over the years.  

In addition to retail securitisation, the volume of wholesale securitisation transactions stood at around ₹6,600 crore  for FY23. 

Minimal Disruptions Faced by the Securitisation Market 

The retail securitisation market experienced significant growth in FY23, with minimal disruptions for the first time  in three years. Unlike in previous years, the market was not heavily impacted by widespread disruptions caused by  lockdowns and restricted movements of people and goods during the pandemic.  

The credit quality of retail assets remained resilient, and the total credit growth of banks increased by just over  15%, 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 change in the regulations in December 2022 did not have any material impact on the overall volumes, except  that securitisation volumes by Fintech lenders were negatively impacted in H2FY23, as predicted by CARE Ratings  (‘Residual Maturity Norms May Hurt Fintech Lenders’). 

The market has attracted new originators spread across universal banks, small finance banks, NBFC & HFC. This  could have been driven by higher demand for retail assets and the interest rate scenario. The market saw a growth  of around 30% in the number of originators. 

The market also saw participation from one of the leading Public Sector Banks (PSBs) as investors in PTC  transactions. This was a major change, given that their preferred mode of taking exposure used to be primarily  through the DA route. This could have far-reaching implications for the PTC market. The market also saw instances  of coupons (both PTC and DA) getting linked to floating rate benchmarks, even though the underlying loans in the  transaction were fixed-rate loans.

Sanjay Agarwal, Senior Director at CARE Ratings, said, “Anchoring the investor coupon to floating rate benchmarks  where the underlying pool comprises fixed rate contracts, increases complexity which needs to be factored in the  evaluation of these transactions. The continued growth in volumes shows the confidence of the investors in  securitisation as a product and the increased comfort that they have developed with the inherent complexity in the  transactions.” 

Retail Securitisation Volume and Asset Class-wise Breakup 

As mentioned earlier DA transactions dominated the market volume and mortgage-backed securitisation (MBS) transactions comprised a lion’s share of the DA volumes at 50%. Asset-backed securitisation (ABS) and microfinance  [MFI] loan transactions constituted around 31% and 19% of the DA volumes, respectively. DA transactions  witnessed a growth of around 49% in FY23 as compared to FY22. 

PTC volumes were mainly driven by ABS pools contributing around 76% of the total PTC issuances, with around  ₹42,500 crore (62% of PTC issuance) coming from vehicle loan financing, followed by MFI loans contributing around  13%.

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