Securitisation volumes hit pre-Covid levels of Rs 1.9 lakh crore as NBFCs diversify funding

Securitisation volumes in the financial year 2023-24 have surged back to record highs of Rs 1.9 trillion, reminiscent of pre-pandemic levels, despite notable market changes including HDFC Ltd's merger.

This resurgence is largely attributed to non-banking financial companies (NBFCs) diversifying funding sources in response to regulatory shifts. Last November, the Reserve Bank of India (RBI) heightened risk weights on bank exposures to NBFCs by 25 percentage points, necessitating varied funding strategies beyond bank reliance.

The shift is evident from the RBI's 'Financial Stability Report' of June 2023, which highlighted NBFCs' rapid personal loan growth (up 31.3% year-on-year) versus slower industry lending (12.7% growth).

The breakup

Asset-wise, vehicle loan securitisation dominated FY24 (43% market share), followed by microfinance (16%) and business loans (11%). Personal loan securitisation also saw growth (5%). This diversification is projected to continue in FY25 amidst regulatory and corporate shifts affecting gold and mortgage securitisation.

Banks are also increasingly tapping into securitisation, evident from small finance and private banks entering the market. Bank-originated volumes grew over 50% to Rs 10,000 crore in FY24.

Looking ahead, sustained credit demand driven by favourable monsoons and government infrastructure focus is expected to maintain market buoyancy. The current boom signifies NBFCs' adaptability amidst regulatory shifts, though vigilance remains imperative to manage potential stress in securitised portfolios, particularly among smaller NBFCs.