MUMBAI: Citigroup Inc’s India unit is set to buy record asset-backed securities as domestic lenders seek liquidity amid sluggish deposit growth.
The bank plans to buy asset-backed securities linked to retail loans, increasing its book by three-fold to over US$1bil by the end of the fiscal year, said Aditya Bagree, managing director and head of markets at Citi India.
Citi expects close to US$30bil in the country’s total securitisation volume in the fiscal year ending March 31, 2026.
The market for such bundled securities, known as securitisation, is small but growing in the country as Indian lenders seek to improve their credit deposit ratios.
Private banks have historically been rare in the market, but have begun tapping it or exploring deals amid regulatory pressure.
“We’re still in very nascent stages of securitisation in India,” said Bagree.
Additionally, the market is forecast to keep growing – overall volume of asset securitisation increased by more than 80% to 680 billion rupees in the third quarter compared to the prior year, according to ICRA Ratings.
That growth has stemmed from the entrance of large private banks into a market that was historically dominated by India’s non bank financing companies and housing finance companies.
For example, HDFC Bank, the largest private lender, securitised or assigned nearly 2.16 billion rupees of retail loans, including mortgage and auto loans in the three months ended December, and plans to scale up the activity.
IDFC First Bank Ltd, and digital lenders like Navi Finserve have also tapped the market for their retail loan portfolios.
In India securitisation deals provide liquidity for lenders and generally take two forms: asset-backed securities, known locally as pass-through certificates, and direct assignments.
Citi India prefers the prior, and expects such structures to account for nearly 60% of the country’s total securitisation deals this financial year as direct assignment deals shrink.
The pools of loans generally include credit given to individuals for purchases like homes, cars and any other personal needs.
“Several banks and non-banks are looking to sell pools of such assets in India as they realign their credit deposit ratios through different liquidity avenues,” Bagree said.
Vehicle loans are the largest asset class for securitisation, and personal loans and small and medium business loans are also beginning to show up in the portfolios, according to Bagree.
Buyers in the market include local asset management companies and select lenders, but will require long duration players like insurance and pension funds for assets like mortgages to become a part of the securitisation market, said Bagree, adding that alternative investment funds will also become potential buyers in a few years.
“When investors see liquidity, when they see transactions, they will begin to come into the market,” Bagree said. — Bloomberg
