India securitisation volumes 2024: Has co-lending taken the sheen?

Team Finserv | finserv@vinodkothari.com

Three rating agencies reported different numbers, but barring the exception of one, the other two hold that the volumes in FY 24 have been lower than the last peak, FY 20. FY 20 was exceptional – it was the year post ILFS, where all balance sheet lenders and investors to NBFCs rushed to off balance sheet transactions, as bankruptcy remoteness became the key objective. The next year was an exception again – Covid wave. However, FY24 was a year of brisk economic lending, and retail credit expansion. There were, therefore, strong reasons that the watermark reached in FY 20 will be crossed. However, it just remained slightly off that, or, if the numbers given by Care Ratings are to be trusted, marginally crossed the mark.

One obvious reason is the merger of HDFC with HDFC Bank. The two contributed major chunks to Direct assignment volumes. Estimated volume lost due to the merger is around INR 40000 crores^[1]. However, the other instrument that has dug a shovel in securitsation/ DA volumes is the rise in co-lending.

So are we saying the convenience of co-lending has affected at least the DA volumes? Securitisation is a different piece – securitisation is typically resorted to when there is a rated issuance with some multiplicity of investors. However, DA is more like a bespoke placing of business on to the books of another lender. And the so-called “discretionary co-lending” may have much of the convenience of a DA with, what the market generally believes, a lesser compliance burden.

Estimates of co-lending volumes were made by CRISIL. As per these estimates, the volumes have grown from INR 25400 crores last year to about INR 1 lakh crore in FY 24.

                                                       

Securitisation Volumes (in lakh crores)
Financial Year	Care	ICRA	Crisil
2020	1.92	1.96	1.90
2021	0.89	0.87	0.90
2022	1.13	1.26	1.35
2023	1.76	1.78	1.80
2024	2.05[2]	1.88[3]	1.90[4]

DA versus PTCs

Owing to the merger of the HDFC entities, there was a slight shift of balance towards PTCs. Once again, the three rating agencies have estimated the split differently. The split between DA and PTCs between FY 20 and FY 24 have been presented below:

Securitisation Volumes
Financial Year	Care		ICRA		Crisil
	DA	PTC	DA	PTC	DA	PTC
2020	62.50%	37.50%	61.22%	38.78%	55.26%	44.74%
2021	64.04%	35.96%	68.97%	31.03%	63.33%	36.67%
2022	63.72%	36.28%	55.00%	45.00%	62.22%	37.78%
2023	60.80%	39.20%	60.00%	40.00%	57.78%	42.22%
2024	50.73%	49.27%	42.55%	57.45%	43.00%	57.00%

Asset classes and structures

In fiscal 2024, vehicle loan securitisation captured the largest market share at 43%, up from 31% in fiscal 2023. Microfinance accounted for 16%, a slight increase from 15% previously. Business loan securitisation more than doubled its contribution to 11% from 5%, while personal loan securitisation stood at 5%, up from 4%. With expectations of robust credit growth and recent regulatory/corporate actions affecting gold loan and mortgage securitisation, the volume mix is projected to tilt towards these asset classes in fiscal 2025.

Conversely, the share of mortgage-backed securitisation declined to 17% from 33% in fiscal 2023, while gold loan securitisation also saw a decrease to 6% from 7% in the same period.

In terms of structures, there was an increase in the demand for replenishment of revolving structures.

Another notable development in the market was the entry of banks as originators. While this was mostly dominated by Small Finance Banks, there were certain Private Sector Banks in the space as well. Bank-originated volumes grew by over 50% to Rs 10,000 crore in FY 2024, up from Rs 6,600 crore in FY 2023.

Investors

In the investor landscape, banks maintained their stronghold, comprising 41% of the market share for private sector banks, 28% for public sector banks, and 20% for foreign banks. Private and foreign banks exhibit a preference for PTCs, whereas public sector banks primarily acquire pools via the DA route.

NBFC investors constituted 8% of the volume. Additionally, other participants like mutual funds (engaged in PTCs supported by secured vehicle and business loans), insurance companies (investing in mortgage-backed PTCs), and alternate investment funds (participating in PTCs spanning various asset classes) also contributed to the market.

---

^[1] Based on its share in the overall volume in FY 23

^[2] https://www.careratings.com/uploads/newsfiles/1712750319_Retail%20Asset%20Securitisation%20-%20All%20Time%20High%20at%202.05%20Lakh%20Crore.pdf

^[3] https://www.icra.in/CommonService/OpenMediaS3?Key=2e7c005c-8540-4dd0-8b83-c6482ae94513#:~:text=According%20to%20ICRA’s%20estimates%2C%20the,ICRA’s%20projections%20for%20the%20year.

^[4] https://www.crisilratings.com/en/home/newsroom/press-releases/2024/04/securitisation-volume-scales-peak-of-rs-1-9-lakh-crore.html