Securitisation volumes in India are expected to reach an impressive Rs 60,000 crore in the fourth quarter of FY25. This increase is driven by multiple factors, including the higher demand for Priority Sector Lending (PSL) assets among banks to meet regulatory requirements and the rising disbursements in the microfinance sector. This surge in volumes during Q4 is a common trend, as banks and financial institutions push for more acquisitions and securitisation deals towards the end of the financial year.
Key Drivers of Increased Securitisation
1. Regulatory Norms and PSL Requirements
One of the main drivers of the expected rise in securitisation volumes is banks’ need to meet Priority Sector Lending (PSL) targets. PSL is a mandate from the Reserve Bank of India (RBI), requiring banks to lend a certain percentage of their total lending to sectors such as agriculture, micro, small, and medium enterprises (MSMEs), and affordable housing. To comply with these norms, banks often acquire PSL-eligible assets through securitisation, especially towards the end of the financial year.
2. Growth in Microfinance Disbursements
The microfinance sector in India has seen substantial growth, particularly with increasing demand for small loans in rural and semi-urban areas. Microfinance institutions (MFIs) have ramped up their disbursements, and many of these loans are often securitised to provide liquidity. As microfinance disbursements pick up, there is a corresponding increase in securitisation activities, contributing to the overall volume growth.
Securitisation Trends in India
Q4FY25 Expected Volumes
| Sector | Expected Volume (Rs Crore) |
|---|---|
| Priority Sector Lending | High demand expected |
| Microfinance Securitisation | Rs 60,000 crore (total expected) |
Securitisation volumes typically see a spike in Q4, as banks, financial institutions, and non-banking financial companies (NBFCs) look to close deals and meet their annual targets. The expectation of Rs 60,000 crore in Q4FY25 will mark a substantial increase in volumes compared to previous quarters, highlighting the increased focus on meeting regulatory and liquidity requirements.
Securitisation and Asset-Backed Securities
Securitisation involves pooling various types of debt — including home loans, vehicle loans, and microfinance loans — and converting them into securities that can be sold to investors. The trend of asset-backed securities (ABS) and mortgage-backed securities (MBS) has grown as an alternative funding source for banks and financial institutions, further driving securitisation volumes.
Conclusion
The expected rise in securitisation volumes to Rs 60,000 crore in Q4FY25 is a positive indicator of the growing interest in securitisation in the Indian financial market. With higher demand for PSL assets and the continued growth of the microfinance sector, banks and financial institutions are poised to engage in more securitisation deals. This not only helps meet regulatory requirements but also improves liquidity, risk management, and capital adequacy for banks. The trends point to a healthy securitisation market in India, with further growth expected in the coming quarters.
People May Ask
What is securitisation?
Securitisation is the process of pooling various types of debt and converting them into tradable securities, allowing financial institutions to raise capital.
Why do banks securitise assets?
Banks securitise assets to meet regulatory norms, improve liquidity, manage risks, and release capital for further lending.
What is PSL in banking?
Priority Sector Lending (PSL) is a regulatory requirement for banks in India, mandating them to lend a certain percentage of their total lending to specific sectors such as agriculture, MSMEs, and affordable housing.
How does microfinance impact securitisation?
As microfinance institutions increase disbursements, securitisation volumes rise since microfinance loans are often packaged into securities and sold to investors.
What are the expected securitisation volumes for Q4FY25?
Securitisation volumes in India are expected to reach Rs 60,000 crore in Q4FY25, driven by regulatory requirements and increased microfinance disbursements.
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