India’s securitisation market has hit a new high in FY25, with volumes surging 25% year-on-year to INR 2.3 trillion, up from INR 1.8 trillion in FY24, according to a report by India Ratings and Research (Ind-Ra). This growth, driven primarily by a few private sector banks stepping into the role of originators, underscores securitisation’s rising importance as a funding tool in India’s financial ecosystem. But as the market expands, challenges—particularly in the unsecured loan segment—are casting a shadow over its future trajectory. Let’s break down what’s fueling this momentum, the hurdles it faces, and what to expect next.
What Is Securitisation, and Why Does It Matter?
Securitisation is a financial process where banks and non-banking financial companies (NBFCs) pool illiquid assets—like loans or receivables—and convert them into tradable securities. These securities are then sold to investors, allowing originators to raise capital, manage liquidity, and transfer risk. In India, where credit demand often outpaces deposit growth, securitisation has become a lifeline for financial institutions, especially amidst high credit-deposit ratios. For instance, private sector banks like HDFC Bank have leaned heavily on this tool in FY25 to improve their ratios post-merger with HDFC, as noted in a recent Crisil report.
What’s Driving the FY25 Boom?
The 25% jump in securitisation volumes to INR 2.3 trillion in FY25 marks a record high, propelled by two key factors. First, private sector banks have significantly increased their participation, contributing 26% of the total volume in FY25, up from just 5% in FY24. This shift is largely due to banks using securitisation to navigate liquidity challenges, a trend also highlighted by Crisil, which pegged the overall market at INR 2.35 trillion. Second, existing players like NBFCs—particularly vehicle financiers and mortgage lenders—have scaled up issuances, offsetting declines in microfinance and gold loans, which have been hit by rising delinquencies and regulatory curbs.
The market split between pass-through certificates (PTCs) and direct assignments (DAs) also tells a story of evolving preferences. PTCs, which allow more flexible structuring, outpaced DAs in FY25, accounting for INR 1.29 trillion (54% of the volume) compared to DAs at INR 1 trillion (46%). In Q4 FY25 alone, PTCs hit INR 269 billion while DAs reached INR 245 billion, reflecting investor appetite for tailored cash flows, especially in vehicle and personal loan segments. Vehicle loans dominated PTC volumes, making up 65% in Q4 FY25, as per Ind-Ra’s data.
The Unsecured Loan Challenge
Despite the growth, not all is rosy. Unsecured asset classes—microfinance, personal, and business loans—comprised 35% of Ind-Ra-rated PTC transactions in Q4 FY25, showing sustained investor interest. However, these segments are under strain. Microfinance institutions (MFIs) saw delinquencies drop slightly to 7.39% in March 2025 from 8.14% in December 2024, but the segment remains stressed, with low-rated MFIs struggling to issue securities. Unsecured business loans reported a delinquency rise to 3.80% in March 2025 from 3.25% in December 2024, while personal loans hovered between 3.5% and 3.6%. Secured loans like vehicle and home loans, however, stayed stable with delinquencies below 1%.
The slowdown in Q4 FY25—volumes fell 21% quarter-on-quarter to INR 514 billion from INR 650 billion in Q3—further highlights the unsecured loan drag. NBFCs, grappling with muted disbursements in these high-risk segments, scaled back, a trend also noted by ICRA, which reported similar stress in microfinance and personal loans in Q3 FY25.
Investor Trends and Structural Shifts
Investors are adapting to these risks. In Q4 FY25, 87% of Ind-Ra-rated PTC transactions followed a timely interest and ultimate principal payment structure, ensuring stability. Many also adopted trigger-based early amortisation structures, which accelerate repayments if a transaction’s performance falters—a feature investors increasingly favor for unsecured loans. Banks remain the largest investors, holding over 90% of the market share, though mutual funds, insurers, and alternative investment funds are slowly gaining ground, as per Crisil’s insights.
What’s Next for Securitisation in India?
Looking ahead, Ind-Ra expects the unsecured loan space to remain under pressure in the first half of FY26, driven by rising delinquencies and the need for tighter risk controls. The recent cap on borrower exposure to multiple MFI lenders—a regulatory move to curb over-leveraging—will also impact transaction performance, requiring close monitoring. Yet, the overall outlook for securitisation remains upbeat. Ind-Ra predicts continued growth through the PTC route, with non-priority sector lending (e.g., vehicle and personal loans) likely to lead the charge in FY26. This aligns with broader market sentiment, as Crisil also forecasts sustained momentum into FY26, driven by credit growth at banks and NBFCs.
The securitisation market’s evolution in FY25 reflects both its resilience and its vulnerabilities. While private sector banks and NBFCs have harnessed it as an efficient funding tool, the stress in unsecured loans serves as a cautionary tale. Stronger collection strategies and risk management will be key to sustaining this growth. For now, Malayalam cinema isn’t the only thing putting India on the global map—its financial innovations are making waves too. But as with any good story, the next chapter will depend on how well the industry navigates its challenges.