The volume of securitisation of retail asset in the secondary market (including pass-through certificate [PTC] issuance and direct assignment [DA] transactions) for FY24 touched an all-time high of ₹2,05,000 crore, registering a growth of around 17 per cent compared to FY23, according to CareEdge Ratings’ estimate.

A break-up of retail asset securitisation in FY24 shows that PTC and DA volumes stood at ₹1,01,000 crore (₹69,000 crore in FY23) and ₹1,04,000 crore (₹1,07,000 crore).

“Credit growth remains robust and the size of the co-lending market has also grown. We expect the market for residential mortgages to gain traction over the next couple of years. These factors will have a large role to play in shaping the retail securitisation market in India in FY25,” the rating agency said.

The volume in the last quarter (Q4FY24) could have been higher if not for the impact of a preference for balance sheet lending and mismatch in pricing expectations between originators and buyers, said Sanjay Agarwal, Senior Director; Vineet Jain, Senior Director; Sriram Rajagopalan, Associate Director; and Chirag Gambhir, Assistant Director, CareEdge Ratings.

The merger of HDFC with HDFC Bank also led to a drop in volume and consequently impacted market growth.

“The resilient performance of securitisation transactions and the preference of banks to grow retail assets/ meet PSL (priority sector lending) norms ensured the market crossed ₹2 lakh crore. We expect a higher level of activity in the RMBS (residential mortgage-backed security) space in this financial year. CareEdge Ratings expects the market momentum to continue in FY25,” said Jain.

The agency noted that the merger of HDFC entities has adversely impacted DA volume, which constituted 51 per cent (around 61 per cent in FY23) of the overall volume for FY24. PTC transactions accounted for the remaining 49 per cent (around 39 per cent in FY23).

Mortgage-backed securitisation (MBS) transactions comprised 42 per cent of DA volumes during FY24, followed by asset-backed securitisation (ABS) transactions at 33 per cent.

The agency said the big change is that microfinance (MFI) loan transactions contributed around 25 per cent of the DA volume for FY24, up from 19 per cent in the previous year.

The share of MBS in the overall volume (PTC + DA) shrank by around 6 per cent as a natural effect of the merger.

“As expected, ABS pools constituted approximately 74 per cent of the total PTC issuances, followed by MBS loans and MFI loans, contributing around 14 per cent and 12 per cent, respectively. Vehicle loan financing (includes pools backed by loans against commercial vehicles, cars, two-wheeler construction equipment, tractors, etc.) accounted for around ₹63,000 crore (63 per cent of PTC issuance),” the agency said.

Sriram said: “It is interesting to note the increase in the share of MFI loan pools in DA transactions. The market also witnessed the entry of around 40 new originators. The broadening of the originator base bodes well for the future expansion of the Indian securitisation market as a whole.”