Stable Securitisation Market in FY25 Q1 Despite Volume Decline: Ind-Ra

India Ratings and Research (Ind-Ra) reports a steady securitisation market in Q1 FY25, despite an 18% year-on-year volume drop to Rs 450 billion. The exit of HDFC Ltd from the DA market and potential growth with new originators, particularly private banks, were noted as key factors impacting the market.

India Ratings and Research (Ind-Ra) has reported a steady securitisation market for the first quarter of FY25, despite an 18 per cent year-on-year decline in volumes, bringing the total to just over Rs 450 billion. This decline was anticipated following HDFC Ltd's exit from the direct assignment (DA) market in July 2023. However, the quarter-on-quarter decrease was minimal at just 3 per cent, suggesting potential growth for the rest of the fiscal year.

Historically, securitisation volumes are lower in the first quarter and increase throughout the year. Ind-Ra anticipates market expansion with the entry of new originators, particularly large private banks, viewing securitisation as an alternative funding source.

Pass-through certificates (PTCs) continued to lead the market, contributing over 52 per cent to the 1QFY25 volumes, though their proportion saw a significant drop of over 20 per cent quarter-on-quarter.

Jatin Nanaware, Senior Director of Structured Finance at Ind-Ra, stated, "The securitisation volumes in 1QFY25 have met our expectations. We foresee a broadening market with new entrants, including private banks, considering securitisation as an alternate funding source. Having the option of a backup servicer from day one provides additional support to PTC investors." For the second consecutive quarter, Ind-Ra rated a transaction originated by a private bank. The BHARAT 2024 Series II transaction comprised four tranches with ratings ranging from 'IND AAA' to 'IND BBB+', featuring a timely interest and ultimate principal payment structure.

Additionally, Ind-Ra rated a structure involving multiple securitisation issuances from a single trust, each independent in terms of pool, structure, operational accounts, and cashflows. The agency also rated two transactions in the past quarter that included a backup servicer arrangement from inception. These transactions had specific triggers that, when breached, would lead to the backup servicer taking over the pool's servicing.

Furthermore, Ind-Ra rated a rent receivables securitisation transaction, Prosperity Asset 8 Trust, with an ultimate interest and principal structure during the quarter. Vehicle loans led PTC volumes, accounting for 61 per cent of all transactions rated by the agency in the past quarter, followed by unsecured personal loan pools with a 33 per cent share.

Notably, 80 per cent of the rated transactions featured a timely interest and ultimate principal structure. Additionally, about 65 per cent of the transactions had a turbo amortisation feature, indicating investor preference for such structural mitigants. In terms of live transaction performance, delinquencies in PTCs backed by secured asset classes remained within a range, while there was a slight increase in delinquencies in PTCs backed by unsecured asset classes compared to the previous quarter.

These delinquencies, however, remained within Ind-Ra's base assumptions. The agency continues to closely monitor all transactions for delinquencies. Collection efficiency showed a range-bound trend for secured asset classes from July 2023 to June 2024 payouts. However, a dip in collection efficiency was observed for transactions backed by unsecured asset classes.

Despite these trends, none of the Ind-Ra rated transactions experienced a decline in their credit enhancement from January to June 2024, and there were no negative rating actions in 1QFY25.