Private Lenders Securitise Loans Worth Rs 21,000 Crore in Q2 FY25 Amid Deposit Competition

Private Lenders Securitise Loans Worth Rs 21,000 Crore in Q2 FY25 Amid Deposit Competition

Private sector banks in India securitised loans worth Rs 21,000 crore during the second quarter of FY25 (Q2 FY25), as they sought to generate liquidity amid fierce competition for deposits. This move is also expected to help these lenders improve their credit-deposit (C/D) ratios, a metric that has drawn concern from the Reserve Bank of India (RBI) due to its high levels for certain banks. The central bank has advised these institutions to review their business models to better manage these ratios.

According to Abhishek Dafria, group head of structured finance at ICRA, the securitisation market saw an exceptional performance in Q2 FY25, with total volumes reaching Rs 60,000 crore. A significant portion—35%—of this came from private sector banks that are leveraging the securitisation market to enhance their C/D ratios in the face of slower deposit growth. Securitisation refers to the practice of pooling various loans, such as auto loans or mortgages, and selling them as pass-through certificates (PTCs) or assignment deals to investors.

One of the key contributors to this surge was HDFC Bank, India’s largest private lender. The bank securitised new car loans worth Rs 9,063 crore through a PTC transaction, in which mutual funds played a prominent role as investors. This asset-backed securities (ABS) transaction was given an "AAA" rating by India Ratings, highlighting its high creditworthiness.

Jatin Nanaware, senior director at India Ratings, noted that regular securitisation issuances by major financial institutions would help strengthen the securitisation market. These activities not only enhance investor confidence but also attract foreign portfolio investors. Additionally, proactive regulatory measures are crucial for maintaining financial market stability.

Aside from banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs) are also expected to remain active in the securitisation market. These institutions are using securitisation to diversify their funding sources and improve their asset-liability management (ALM). However, there remains some uncertainty about whether the high volume growth seen in Q2 FY25 will be sustained in the upcoming quarters, as large-scale transactions may be limited in the future.

ICRA predicts that securitisation volumes could reach Rs 2.1 trillion by the end of the current fiscal year (FY25). As part of its strategy to manage its high C/D ratio, HDFC Bank has so far securitised Rs 19,200 crore worth of loans in FY25.