The securitisation market is experiencing a significant resurgence in financial year 2023-24 (FY24), with volumes reaching record highs of Rs 1.9 trillion. This achievement marks a return to the peak levels last seen in the two financial years prior to the COVID-19 pandemic. The strong performance is particularly remarkable given the absence of HDFC Ltd, a major player in the previous financial year.
HDFC Ltd, which accounted for 23% of the FY23 volumes of Rs 1.8 trillion, has ceased to operate in the securitisation following its merger with HDFC Bank. Despite this major change, the has adapted and demonstrated an impressive growth rate of 27% when adjusted for the absence of HDFC Ltd. This resilience and adaptability highlight the strength and maturity of the securitisation in FY24.
Diverse Issuance and Transactions in FY24
One of the key drivers of the securitisation market’s robust performance is the increase in issuance diversity. In FY24, 165 originators were responsible for logging 1,100 transactions, an increase from 160 originators in the previous financial year. This level of diversity underscores the broad-based participation in the securitisation market, representing a wide range of financial entities seeking to diversify their funding sources.
The broad participation also reflects the growing confidence in securitisation as a funding mechanism. By engaging in various transactions, institutions are tapping into the benefits of securitisation, including enhanced liquidity, improved risk management, and access to a wider pool of capital.
Shadow Banks Benefit from Securitisation
Shadow banks, or non-banking financial companies (NBFCs), have been particularly proactive in leveraging securitisation to diversify their funding sources. As a result, they are better positioned to navigate the evolving financial landscape and maintain their competitive edge.
Through securitisation, shadow banks can optimize their balance sheets, lower funding costs, and expand their lending capacities. This flexibility allows them to offer a wider range of financial products and services to their customers, ultimately contributing to their growth and sustainability.
Outlook for the Securitisation Market
The robust performance of the securitisation market in FY24 is a positive indicator of the financial sector’s resilience and potential for growth. As more financial institutions embrace securitisation, the is likely to continue expanding and evolving, offering new opportunities for participants to innovate and enhance their offerings.
Looking ahead, the securitisation is poised to play a crucial role in supporting the ongoing development and stability of the financial industry. By providing a diverse and dynamic funding source, securitisation will help financial institutions adapt to changing conditions and capitalize on emerging opportunities.
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FAQs: Securitisation Market Booms as Shadow Banks Diversify Funding Sources
- What is securitisation?
- Securitisation is a financial process in which assets, such as loans or receivables, are pooled together and then sold as securities to investors. This allows financial institutions to transfer risk and raise capital.
- How has the securitisation market performed in FY24?
- The securitisation market in FY24 has seen a significant resurgence, with volumes reaching record highs of Rs 1.9 trillion. This level of performance matches the peak levels observed in the two financial years before the pandemic.
- What impact has the absence of HDFC Ltd had on the market?
- HDFC Ltd, which accounted for 23% of the FY23 securitisation volumes, is no longer participating in the following its merger with HDFC Bank. Despite its absence, the market has adjusted well and experienced a growth rate of 27% when HDFC Ltd is excluded from the equation.
- How many originators participated in the FY24 securitisation market?
- In FY24, 165 originators participated in the securitisation market, logging 1,100 transactions. This indicates a diverse range of financial institutions actively engaging in securitisation.
- How are shadow banks benefiting from securitisation?
- Shadow banks, or non-banking financial companies (NBFCs), are leveraging securitisation to diversify their funding sources. This allows them to improve liquidity, manage risk effectively, and expand their lending capacities.
- What are the potential advantages of securitisation for financial institutions?
- Financial institutions can benefit from securitisation by accessing additional funding sources, optimizing their balance sheets, and reducing funding costs. It also helps them enhance their offerings and services to customers.
- What does the future hold for the securitisation market?
- The securitisation market is expected to continue its growth trajectory and play a crucial role in supporting the ongoing development of the financial industry. As more institutions engage in securitisation, the market will likely offer new opportunities for innovation and expansion.
- Is securitisation safe for investors and institutions?
- Securitisation can be a safe and effective tool when properly managed. It involves pooling assets and selling securities to investors, which helps spread risk. However, both investors and institutions should conduct thorough due diligence and assess risks before engaging in securitisation transactions.
