(Commonwealth_India) Citigroup Inc.’s India division is positioning itself to make a significant move into the country’s asset-backed securities market, as domestic lenders grapple with slower deposit growth and look for new avenues to boost liquidity. The bank has plans to expand its holdings in asset-backed securities (ABS), which are tied to retail loans, with projections to increase its book by three times, surpassing $1 billion by the end of the fiscal year. According to Aditya Bagree, managing director and head of markets at Citi India, the bank anticipates the overall securitization market in India to reach around $30 billion by the fiscal year’s conclusion, which is slated for March 31, 2026.
Asset-backed securities represent bundled loans, such as mortgages, car loans, and other personal loans, and provide a vital means for banks to release capital and improve their liquidity. The securitization market in India is still in its infancy but is rapidly expanding, as local lenders, under regulatory pressure to improve their credit-to-deposit ratios, explore new ways to shore up their finances. While private banks have traditionally been on the periphery of this market, there is a growing trend among these institutions to either enter the space or explore securitization deals, driven by the increasing need for liquidity.
Recent data from ICRA Ratings reveals a sharp rise in the market’s volume, with the value of asset securitization growing by more than 80 percent to approximately Rs 68,000 crore (about $7.81 billion) in the third quarter of the previous year, compared to the same period in 2023. This surge has been partly fueled by the entry of large private banks, marking a significant shift in a sector that was once dominated by non-bank financing companies and housing finance firms.
One of the prime examples of this trend is HDFC Bank, the largest private lender in India, which securitized nearly Rs 216 crore worth of retail loans, including mortgages and auto loans, during the three months ending December 2024. HDFC Bank is also planning to ramp up its securitization activities moving forward. Similarly, other major banks like IDFC First Bank and even digital lenders such as Navi Finserve are actively participating in the market by bundling and selling their retail loan portfolios.
In India, securitization transactions generally fall into two categories: asset-backed securities (ABS), which are locally known as pass-through certificates, and direct assignments. Citi India, in particular, has expressed a strong preference for the former. The bank expects asset-backed securities to make up nearly 60 percent of the total securitization deals in India for the current fiscal year, with direct assignments becoming less common. These transactions involve selling pools of loans, typically focused on consumer credit for big-ticket purchases such as homes, vehicles, or other personal loans.
According to Bagree, the rise in asset securitization has been prompted by a growing number of banks and non-banks that are seeking to realign their credit-to-deposit ratios by tapping various liquidity sources. Among the most common assets being securitized are vehicle loans, but other types of loans, such as personal loans and small and medium-sized business loans, are starting to make their way into the market as well.
The buyers of these asset-backed securities are mainly local asset management companies and select lenders. However, for the market to truly mature, there is a need for long-term players like insurance firms and pension funds to become more involved, particularly in the case of mortgage-backed securities. Bagree noted that over time, alternative investment funds (AIFs) will also likely emerge as important buyers in this space. As the market becomes more liquid and sees higher volumes of transactions, more investors will be drawn to it.
Bagree emphasized that the market will only continue to expand as investors begin to see more liquidity and active trading in these securitization products. With the participation of larger institutional players, such as pension funds and insurance companies, the asset-backed securities market in India is poised for further development and growth, offering additional liquidity for banks and creating more investment opportunities for institutional investors.
