Lenders likely to securitise loans over Rs 60,000 crore in Q3FY25

Secured loans are prime assets; investors selective about segments with quality pressures

With challenging liquidity conditions, banks and finance companies are getting to securitise — pass through certificates (PTCs) and direct assignment (DA) — loans worth over Rs 60,000 crore in the third quarter of the current financial year ending December 2024 (Q3FY25), to generate resources for deployment in lending. Also, the rising credit volumes are creating the demand for priority sector loans to meet regulatory requirements.

 

Securitisation involves pooling of loans in a structure and selling it to the prospective buyer, or investor.

 

Under PTC securitisation transactions, loans are packaged into marketable securities, which are sold to investors. In DA, one financial institution sells a pool of loans directly to another financial institution without creating securities.

 

 

The secured assets — mortgage, including housing and vehicle loans — are much in demand than unsecured credit: microfinance, personal, and business loans. Given the asset quality pressures, investors have become cautious and selective in picking up unsecured assets, bankers and analysts said.

 

Abhishek Dafaria, senior vice president & group head-structured finance, ICRA, said securitisation volumes are likely to be in the range of Rs 60,000-70,000 crore in Q3FY25. But there could be some fallout from stress in the microfinance sector and unsecured loan segment.

 

The expectation in Q2FY25 was of about Rs 45,000-50,000 crore but the actual number turned out to be Rs 70,000 crore. That was driven by large private banks doing large volumes of about Rs 20,000 crore, through PTC and DA put together, Dafaria added. 

 

Two large transactions in the last few weeks by a large private lender and a non-banking financial company (NBFC) give indications of the likely scale of volume. In November 2024, country’s largest private sector lender HDFC Bank opted to work on securitising new car loans by issuing PTCs valued at just over Rs 12,700 crore, according to India Ratings data.

 

Another Rating agency ICRA said South-based NBFC Cholamandalam Investment and Finance securitised vehicle loans with outstanding of Rs 964 crore through PTCs.

 

Jatin Nanaware, senior director and head of structured finance group, India Ratings, observed that while it is difficult to predict volume of securitisation in the third quarter, there is a surge in supply coming in from banks. There is significant demand for secured assets.

 

People are selective in the unsecured loans space with respect to which originator and category of loan they are taking exposure to. Given the asset quality issue, people are going to be cautious in microfinance with respect to geography and originator, he added.

 

According to ICRA data, the share of PTCs was at Rs 56 per cent of the market for the first half of the current financial year (H1FY25). This was aided to an extent by one large-size PTC transaction in Q2FY25 by a private sector bank.

 

The entities engaged in home loan/loan against property (HL/LAP) and microfinance securitise pools primarily through the DA route, while vehicle loan financiers give preference for PTCs, bankers said.