Larger banks may explore securitisation in the current financial year to unlock liquidity and support loan growth in the backdrop of deposit growth continuing to lag credit growth.

So far, non-banking finance companies, including housing finance companies, small finance banks and some small banks have tapped the securitisation route whenever they faced a situation where resource mobilisation has not kept pace with asset creation.

Securitisation is a structured process whereby identified pool of loans are packaged together and sold to an SPV (special purpose vehicle), which in turn issues PTCs (Pass Through Certificates) to investors.

Direct assignment is a variation of the securitisation transaction, whereby the identified assets are sold on a bilateral basis to the investor (and no separate SPV is set up).

Sanjay Agarwal, Senior Director, CARE Ratings, said, “The banking system is in a churn right now in terms of difference in credit and deposit growth. So, in FY25, there may be some solution to narrow this gap.

“We are likely to see first few securitisation transactions in FY25 from larger banks. Right now, it is process of discovery.”

Higher credit growth

He said that historically, for the last three-four decades, credit growth has always been higher than deposit growth, except for about five years from 2014 when the banking sector faced asset quality reviews and then Covid challenges.

“We have a very high CD (credit-deposit) ratio of 80 per cent, thereabouts. The earlier gap of 400-500 basis points between credit and deposit growth in FY23 has now narrowed down to 200-250 bps. So, to a certain extent, this gap is likely to remain,” Agarwal said.

If larger banks enter the fray for securitising their loans, the market volumes could go up. According to ICRA, the overall volumes for FY2024 grew by 4 per cent year-on-year (YoY) to ₹1.88-lakh crore.

Abhishek Dafria, Senior Vice-President and Group Head, Structured Finance Ratings, ICRA, said: “The securitisation market volumes expanded by 25 per cent YoY in FY2024, if we exclude HDFC Ltd, which exited the market in Q2 (July-September) FY2024. The increase in volumes was driven by both existing large originators, who securitised higher volumes during the year, and new originators.

“We witnessed a sharp increase in securitisation by small finance banks as well as initial steps taken by a few private sector banks in this space to support their portfolio growth, given the recent challenges in deposit growth rates.”

If similar trends continue, ICRA projects securitisation volumes to comfortably cross ₹2-lakh crore in FY2025. Nonetheless, the increasing share of co-lending by the NBFCs and HFCs would challenge the growth in the securitisation market, though at this juncture the agency expects an increase in both forms of funding.