Mumbai (Maharashtra) [India], July 13 : India Ratings and Research (Ind-Ra) has reported a steady securitisation market in the first quarter of FY25, despite a year-on-year (Y-o-Y) decline of 18 per cent in volumes, bringing the total to just over Rs 450 billion.
This drop was anticipated following HDFC Ltd's exit from the direct assignment (DA) market in July 2023. However, the quarter-on-quarter (Q-o-Q) change was minimal, with only a 3 per cent decrease, indicating potential growth in the securitisation market for the remainder of the fiscal year.
Historically, securitisation volumes are lower in the first quarter and tend to increase throughout the year.
Ind-Ra expects the market to expand with the inclusion of new originators, particularly large private banks, which are starting to view securitisation as an alternative funding source.
Pass-through certificates (PTCs) continued to dominate the market, contributing over 52 per cent to the 1QFY25 volumes.
However, their proportion in overall volumes saw a significant drop of over 20 per cent Q-o-Q.
Jatin Nanaware, Senior Director of Structured Finance at Ind-Ra, commented, "The securitisation volumes in 1QFY25 have been in line with our expectations. We expect the market to broaden with new entrants including private banks looking at securitisation as an alternate source of funding. 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 transaction, BHARAT 2024 Series II, 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.
Ind-Ra 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 continued to lead PTC volumes, accounting for 61 per cent of all transactions rated by the agency in the past quarter. Unsecured personal loan pools followed 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.
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