Securitization of loans provides additional money to banks and NBFCs for disbursing loans. But, due to sluggish demand for loans and emerging pressure, banks are not showing much interest in giving loans. Due to this, there has also been a decline in securitization of loans. CRISIL report shows that securitization volumes have declined.
Meaning of securitization
Banks and NBFCs bundle their loans. Then sell it as security. This process is called securitization. It is widely used in the financial markets of developed countries. In comparison, the securitization market in India is small. The slow pace of securitization has impacted credit growth. Securitization has been the last option for banks to meet loan funding needs in India. Despite this, the growth of the securitization market has been quite high.
NBFCs use more
NBFCs have been using this method more. The recent slowdown in credit growth has also affected the securitization of NBFCs. Despite this, the growth of securitization at the NBFC level has been 15 percent in the first half of this year. On the other hand, banks have done only a few securitization deals. Their share in total volume has fallen from 29 percent last year to less than 3 percent. Bundling of mortgage loans in India is even less. The share of mortgage loans in securitization has fallen to 17 percent from 27 percent a year ago.
Higher share of vehicles loan in securitization
The share of vehicle loans in securitization assets was 42%. The share of unsecured personal loans has declined. The reason for this is the emerging pressure in the personal loan segment. Microfinance loans have again seen a rise in the second quarter. With this, its share in securitized transactions has reached 12 percent during April-September. Crisil analysts believe that NBFCs can continue securitization of loans.
NBFC credit growth likely to remain good
“NBFCs will have a higher share in securitization volumes this financial year, as NBFC credit growth is expected to remain strong on the back of retail credit growth and uptick in consumption,” the CRISIL report said.