Retail Securitization Market down by 13% Compared to Previous year

According to CARE Ratings, the retail asset securitization market contracted by around 13% year-on-year to Rs 48,000 crore in the June quarter, down from Rs 55,000 crore in the same period last year. The primary reason for the decline is the excess liquidity available with originators.

Despite this contraction, high credit growth, originators' efforts to diversify their funding sources, increased investor demand for retail Priority Sector Lending (PSL) assets, and confidence in the performance of rated transactions—reinforced by their stability during the pandemic—have contributed to the volume of retail asset securitization transactions. This quarter saw several universal banks tapping into the securitization market.

Direct assignment (DA) transactions and pass-through certificates (PTC) accounted for almost equal proportions, similar to the trend observed in the latter half of the previous fiscal year. The split between DA and PTC transactions, which had previously favored DAs, has shifted in recent times.

Mortgage-backed securitisation (MBS) transactions comprised 56% of DA volumes, followed by Asset-backed securitisation (ABS) transactions at 30%, with the remaining being microfinance loans (MFI), according to CARE data. The overall asset class-wise breakdown showed that MFI loan transactions contributed around 11% of total volumes for Q1FY25, down from 15% in the previous year (Q1FY24).

ABS pools constituted a significant share of around 82% of total PTC issuances, followed by MBS and MFI pools, contributing close to 10% and 8%, respectively. The proportion of MFI transactions as a part of PTC issuances also declined from 12% in Q1FY24. Vehicle loan financing (including pools backed by loans against commercial vehicles, cars, two-wheelers, construction equipment, tractors, etc.) accounted for around Rs 16,200 crore (67% of PTC issuance).

CARE Ratings noted that the prediction of above-average rainfall in 2024 by the IMD is favorable for a revival in rural consumption demand. The slow start to the monsoon has been offset by heavy rainfall experienced nationwide in early July 2024, leading to expectations of robust agricultural output. Along with a healthy projected credit growth of 14%-14.5% and increasing demand for PSL assets, the Indian securitization market is likely to exhibit strong volumes in FY25.