Foreign Giants Surge into India's ₹1.53 Lakh Crore ABS Market, Fueling Domestic Credit Growth

Foreign Giants Surge into India's ₹1.53 Lakh Crore ABS Market, Fueling Domestic Credit Growth​

India’s asset-backed securities market has hit a record high, driven by growing interest from global banks seeking exposure to one of the world’s fastest-growing major economies. The surge underscores the increasing sophistication and robustness of India’s domestic credit landscape.

Foreign lenders have significantly increased their participation in this market. According to Krishnan Sitaraman of Crisil Ratings, foreign banks now account for about 30% of total issuance in the year ended March, up from 28% in each of the two preceding fiscal years. This trend has seen overseas lenders invest approximately $5.6 billion out of the ₹1.53 lakh crore ($16 billion) in asset-backed debt sold during that period.

Global Banks Target Indian Credit Market Exposure​

Major international financial institutions are actively participating in these securitization deals. Firms such as Barclays Plc, Citigroup Inc., JPMorgan Chase & Co., and Standard Chartered Plc have stepped up their investments in the sector.

Aditya Bagree, head of markets for India and the subcontinent at Citigroup, noted that for foreign investors, the appeal extends beyond just yield pickup. They are accessing a rapidly growing domestic credit market, which represents a key draw for global players.

Understanding Asset-Backed Securities (ABS) in India​

Asset-backed securities are debt instruments created by bundling various loans, including mortgages, vehicle loans, unsecured personal credit, and gold loans. In the Indian context, securitization is handled through two primary methods: ABS (known locally as pass-through certificates) and direct assignments.

Non-banking entities typically structure these deals with loan portfolios that have remaining maturities ranging from one to 2.5 years. Crisil data indicates that for securities rated AAA, AA, and A, the average coupons generally range between 7.3% and 11.5%.

Regulatory Relief and Credit Market Dynamics​

The rise of ABS is intrinsically linked to the rapid expansion of India’s retail credit market, which generates a large volume of marketable loans. For local banks, purchasing these bundled loans offers critical advantages. It allows them to fulfill mandatory priority-sector lending rules, requiring a portion of their lending to go toward designated sectors like farming.

Furthermore, as stated by Sitaraman, undertaking ABS transactions requires less regulatory capital compared to making certain types of loans directly. This efficiency boost is attracting increased participation from the financial sector.

Big Deals and Issuer Diversification​

The market received significant visibility when Mukesh Ambani’s Reliance Group companies raised ₹210 billion through asset-backed securities in September, marking a major transaction within the country.

Despite this rapid expansion, India’s ABS market remains considerably smaller than China’s total ABS issuance of 2.28 trillion yuan last year. However, the increasing demand has spurred local shadow lenders to issue more such securities to diversify their funding sources.

For instance, HDB Financial Services Ltd., a unit of HDFC Bank Ltd., reported that it utilized pass-through certificates to raise nearly 3% of its total liabilities by March-end, a substantial increase from the previous year. Gaurav Seth, CFO of Aye Finance Ltd., noted that securitized borrowings offered cost advantages, finding these transactions 75 basis points to 100 basis points cheaper than tapping the local bond market due to superior rating assignments.