Q3 securitisation volume falls 17% to Rs 38,000 cr, but up 20% in 9 months

Securitisation volume has declined 17 per cent year-on-year to Rs 38,000 crore in Q3 from Rs 46,000 crore but grown 20 per cent to Rs 1.4 lakh crore during the first nine months of the current fiscal.

However, analysts expect the volume recouping and closing the final quarter much higher.

Rating agencies Crisil and Icra have, in separate reports, said the growth momentum will continue, given the positive regulatory changes, wider participation, and innovative structures nudging growth.

The decline in the third quarter volume is primarily due to the exit of the largest player from the market as HDFC merged with its banking arm on July 1.

Securitisation volume has declined to Rs 38,000 crore in Q3 from Rs 46,000 in the year-ago period. But the volume for the first three quarters rose to Rs 1.4 lakh crore, ratings agencies Icra and Crisil said in separate notes on Friday.

According to this agency, the fall was primarily due to the Reserve Bank massively increasing the capital requirements of lending institutions towards consumer credit by 25 percentage points in November, and expectations of a fall in interest rates in the near term.

According to its estimate, the overall securitisation volume, originated mainly by non-banks and housing finance companies stood at Rs 38,000 crore in Q3, reflecting a sequential de-growth of 17 per cent from Rs 46,000 crore in the third quarter of FY23.

The third quarter volume also trailed the Rs 43,000 crore securitised in Q2, mainly due to the exit of HDFC from the securitisation market.

The agency expects securitisation activity to pick up again and touch Rs 50,000 crore in Q4 of the current fiscal, which is typically the busiest quarter of the year.

According to Abhishek Dafria, a senior vice-president and group head at Icra, the RBI increasing the capital requirements by 25 percentage points for unsecured loans was the major reason for the fall, coupled with some securitisation deals did not fructify as the originators are expecting a reduction in the interest rates in the near-term.

For the full year, he expects securitisation volume to touch Rs 1,90,000 crore against Rs 1,80,000 crore in FY23.

In its report, Crisil said despite a tepid Q3, securitisation volume in the first three quarters expanded 20 per cent to Rs 1,40,000 crore year-on-year due to a strong H1.

During the year, the market has seen a higher share of pass-through certificate issuances vis-a-vis direct assignments, following the exit of HDFC from the market, which was securitising its assets predominantly through direct assignments. If one were to adjust for the HDFC volume and consider only securitisations by other originators, the market grew by a whopping 40 per cent year-on-year.

Vehicle loans continue to be the largest asset class with a 35-40 per cent share in the overall securitisation volume, followed by microfinance loans with a 22-25 per cent share and mortgage-backed loans taking in 18-20 per cent.

Unsecured loans, the share of which was on the rise in the last couple of years in the overall securitisation volume, could be impacted in the near term because of the November 2023 RBI circular, which massively increased the risk capital for such loans.

The rise and spread of the market are expected to continue, given the expected healthy credit growth among NBFCs, the retailisation agenda of banks that are the largest investors in the market, and the recent regulatory guidelines on risk weights by the RBI.

According to Ajit Velonie, a senior director with Crisil, "Growth momentum is expected to remain strong as NBFCs look to further diversify their funding mix, especially given the increased risk weights for bank loans.

"In the first nine months of this fiscal, we have already seen the market widen with the number of originators crossing 135 up from 120 in the same period last fiscal.