Vehicle loan securitisation is expected to cross the pre-pandemic peak levels to reach about ₹70,000 crore in FY24, according to a report from rating agency ICRA.

Vehicle loans have a long track record in the Indian securitisation market. Volumes had seen an upward trajectory till FY20. Post the decline in volumes in FY21 due to the pandemic, they trended higher over the last two years. Securitisation volumes for vehicle loans picked up significantly to about ₹50,000 crore in FY23 from about ₹31,000 crore in FY22.

Shifting dominance

Historically, after mortgage loans (MBS), vehicle loans have also been a dominant asset class in securitisation, accounting for a 25-30 per cent share in annual volumes.

However, from Q3 FY23 vehicle loans, at about 33 per cent of the total volumes, inched slightly ahead of mortgage loans. This was due to high volumes of PSL (priority sector lending) loan securitisation by a few large players. Also, the exit of a large housing finance company, which was a leading originator in mortgage-backed securitisation (MBS).

Thus, the share of vehicle loans in securitisation is expected to increase to 35-40 per cent in FY24.

While the number of vehicle financiers tapping securitisation as a funding route has remained stable at 16-17 in the last three years, a few large originators continue to drive the market volumes. The top four originators accounted for over 75 per cent of the securitised volumes in the last three years.

Pass-through certificates (PTCs) continue to be the preferred route due to the greater appetite of private (domestic and foreign) banks in this asset class. Private banks invest primarily to meet the PSL targets.

PTC yields increased in the last 18 months and have largely moved in tandem with the repo rates. Further revision in PTC yields is likely to be driven by the interest rate environment and the PSL requirements of banks as it has been observed that PSL transactions have a lower yield.