Riding the ?2 Trillion Wave: DA and PTC Securitisation Are the Next Big Bet

The Indian securitisation market is at a tipping point. The ICRA report estimates that the market could cross ?2 trillion by FY2025, driven by both Direct Assignments (DA) and Pass-Through Certificates (PTC). And it’s not just numbers on a page. As per CRISIL, last fiscal year, securitisation witnessed a surge in activity, with around 160 originators and 110 investors pulling off 1,000 transactions. That’s up from 130 originators and 90 investors doing 700 transactions in 2022!

This growth is fueled by a revival in the economy and a rising appetite for credit among non-banks, making securitisation a go-to strategy for raising funds. But here’s the kicker: despite this momentum and potential, many institutions still aren’t tapping into securitisation’s power to unlock liquidity, spread out risk, and drive growth.

So, why is now the perfect moment to dig deeper into this space? Let's start from scratch, shall we? At its core, securitisation is the process of pooling together loans or other income-generating assets and selling them to investors as securities. This practice allows financial institutions, especially non-banking financial companies (NBFCs), to free up liquidity by selling these assets, thus allowing them to generate more loans and scale their operations. Securitisation can apply to various types of loans, including mortgages, vehicle loans, personal loans, and more. The primary types of securitisation in India are Direct Assignments (DA) and Pass-Through Certificates (PTC).

• Direct Assignments (DA): In a DA transaction, an originator sells a pool of loans directly to another financial institution without the creation of securities. It’s a simpler and faster process that provides the selling entity with immediate liquidity.
• Pass-Through Certificates (PTC): Here, the originator sells a pool of loans to a special purpose vehicle (SPV), which then issues certificates (PTCs) to investors. These certificates represent the investors’ claim on the cash flow from the loans, thus spreading the risk across multiple parties.

1. The Current Market: DA and PTC Pools Taking Center Stage

In FY2024, PTCs accounted for 57% of total securitisation volume, with vehicle loans dominating the market. DA, while still popular among NBFCs and housing finance companies, made up the remaining 43%.

The rise in PTC transactions is particularly noteworthy as they allow financial institutions to transfer pools of assets to multiple investors, which reduces risk and provides better structuring options. This is crucial for institutions managing large portfolios as it helps distribute risk across a wider range of investors.

Why PTCs Stand Out:

• Diversified Risk: By pooling various loans (vehicle, home, MSME loans) and distributing them to different investors, the credit risk is shared, making it easier for lenders to manage their exposure.
• Investor Confidence: Private sector banks like ICICI Bank and HDFC Bank have shown increasing interest in PTCs due to their flexible risk-sharing capabilities and regulatory benefits.
• Market Expansion: Smaller financial institutions and even small finance banks are now entering the PTC market, further diversifying the types of assets available for securitisation.

But what’s also worth looking at is the shift in asset classes being securitised. As you can see below, while vehicle loans remain dominant, the rise in business loan securitisation (from 5% to 11%) and personal loan securitisation (from 4% to 5%) reflects a diversification of the asset classes being securitised. However, mortgage-backed loans and gold loan securitisation have seen declines, reflecting shifting priorities and market dynamics.

Here’s a breakdown of how the market has shifted between FY2023 and FY2024:

Growing Bank Participation and Investor Interest

In FY2024, bank-originated securitisation volumes grew by over 50%, reaching ?10,000 crore, up from ?6,600 crore in FY2023. Private sector banks continue to dominate the PTC market, with 41% of total securitisation volume coming from them.

Here’s why banks and NBFCs should explore these pools more aggressively:

• Unlocking Liquidity: NBFCs, particularly those in the microfinance and vehicle finance space, have already demonstrated the power of securitisation. For instance, Muthoot Microfin and Satin Creditcare have used securitisation to free up liquidity, allowing them to expand their loan portfolios and diversify funding sources
• Lower Risk: By securitising assets, institutions can shift their risk onto a wider pool of investors, making it easier to manage exposure in volatile market conditions.
• Regulatory Leeway: Securitisation allows banks to manage their capital more effectively. The ability to offload loans while benefiting from a share in the returns helps balance capital requirements under regulatory frameworks.

3. How Banks and NBFCs Can Maximise Securitisation

Despite its obvious benefits, not every institution is tapping into securitisation’s full potential. Here’s what needs to change:

• Leverage Underutilised Asset Classes: While vehicle loans are the bread and butter, other asset classes like MSME loans, personal loans, and microfinance loans are still underutilised. For example, the commercial vehicle segment dominated PTCs with over ?62,000 crore in volume in FY2024 , but MSME finance still has a long way to go to reach similar levels.
• Increase Participation in PTC Markets: While some private banks dominate the PTC space, there is plenty of room for others to join. Institutions like Cholamandalam Investment and ICICI Bank have already shown the potential for PTCs to diversify risk and enhance liquidity.

Real-Time Example: The Success of Vehicle Loan Securitisation

Private sector banks like HDFC Bank and ICICI Bank are making waves by securitising vehicle loans through PTCs.?

One prime example is HDFC Bank’s recent move to assign a pool of car loans aggregating approximately ?9,000 crore to the India Universal Trust AL1 in an asset-backed securities transaction. The Trust, in turn, will issue Pass-Through Certificates (PTCs) to investors, including banks and mutual funds.

This securitisation transaction shows how a bank like HDFC is innovating to manage its credit-to-deposit ratio efficiently.?

In a letter to shareholders, HDFC Bank MD & CEO Sashidhar Jagdishan stated,

“It is our endeavour to bring down the credit-to-deposit ratio to pre-merger levels and our focus would be to maintain adequate liquidity buffers, repayment of erstwhile HDFC borrowings as and when they mature, including weighing any prepayment opportunities that may arise, and pursuing profitable sources of lending.”?

In FY2024, these banks accounted for nearly two-thirds of the PTC market, demonstrating the scalability and flexibility of securitising these asset classes. This highlights how securitisation can serve both large banks and niche NBFCs equally.

4. The Role of Technology: How Yubi Pools Streamlines Securitisation

Traditionally, securitisation has been bogged down by time-consuming manual operations, extensive due diligence, and complex regulatory compliance. In the years now, as securitisation continues to grow in volume and complexity, institutions that leverage the right tech stack will undoubtedly lead the charge, benefiting from smoother execution, real-time data, and smarter portfolio management.

Yubi Pools, for instance, has facilitated over ?75,000 crore in DA and PTC transactions. It offers a one-stop solution that helps institutions discover, execute, and monitor transactions across multiple asset classes.

Here’s what the right tech stack brings to the table:

• Data-Driven Decision Making: Advanced platforms allow institutions to filter and select loan pools based on specific attributes at both loan level and customer level like residual tenure,? LTV, credit scores, geography, and borrower profiles, etc., This ensures better control over asset quality and smarter portfolio construction.
• Automation for Speed and Accuracy: By digitising the entire securitisation lifecycle—from transaction origination to execution—technology drastically reduces manual efforts, streamlining configurations for each transactions, thereby lowering cost with improving accuracy in portfolio management.
• Real-Time Monitoring: Tech platforms offer real-time insights and track metrics like daily NPA updates and regulatory compliance. This enables institutions to stay agile, make informed decisions, and adapt quickly to changing market conditions.
• Scaling with Ease: The ability to manage large portfolios seamlessly, backed by automation and data insights, ensures institutions can scale their securitisation activities while maintaining compliance and efficiency.
• Future-Proofing the Market: As securitisation grows in complexity, technology is becoming indispensable. Institutions leveraging the right tech stack are not just improving operations—they’re future-proofing their growth in an evolving market.

5. The Market Sentiment: A Balancing Act of Growth and Caution

The securitisation market is poised for exponential growth, but it's not without challenges. The Reserve Bank of India (RBI) has recently tightened regulations concerning credit risk in PTCs, particularly for personal loans and other unsecured assets. This has created some caution among originators, but it’s far from a deal-breaker.

How to Navigate These Risks:

• Diversify Portfolios: Banks and NBFCs should focus on diversifying their PTC portfolios, moving beyond unsecured loans to more stable, asset-backed securities like vehicle loans and mortgages.
• Enhance Credit Enhancements: Credit enhancements such as guarantees can help mitigate the risks of rising delinquencies, ensuring the continued attractiveness of PTCs even in a risk-averse regulatory environment.

On a parallel note, Direct Assignment (DA) is gaining momentum, and initial traction will likely come from financial institutions through this route. DA, a simpler and faster process that directly sells loan pools to other financial institutions, is becoming increasingly popular for improving liquidity.

With banks facing challenges in raising deposits amid strong loan demand, many are turning to the securitisation route, particularly DA, to improve their liquidity position. According to ICRA, securitisation and DA deals in the July-September quarter (Q2FY25) are expected to hit Rs 45,000-50,000 crore.

Abhishek Dafria , Group Head of Structured Finance Ratings at ICRA , confirms this trend:

"This time, high CD ratio is driving the activity of direct assignment — sale of loans — and issuance of PTCs for parcel of loans. The securitisation — direct assignment plus PTC securities — volumes are expected to be Rs 45,000-50,000 crore in the quarter.”

The overall sentiment from the financial industry remains positive, with major players expecting securitisation volumes to bounce back sharply after the initial caution surrounding personal loans.

6. Navigating the Road Ahead: Securitisation as a Growth Enabler

The future of securitisation in India is bright. With the market poised to cross ?2 trillion, it’s clear that securitisation will continue to be a crucial tool for banks and NBFCs. Whether through DAs or PTCs, securitisation enables institutions to free up capital, manage risk, and diversify funding.

For those institutions looking to tap into the full potential of securitisation, platforms like Yubi Pools offer the perfect gateway. By digitising the securitisation process and offering data-driven insights, these platforms ensure that banks and NBFCs can scale their securitisation activities efficiently, all while staying compliant with evolving regulations.

Stay tuned for more exciting editions of Yubi Collective as we continue to explore the transformative journey of India's financial landscape!