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Securitisation may become a key funding source for non-banks focusing on loan book growth by increasing disbursements after a prolonged slowdown, credit rating agency CRISIL Ratings Ltd said in a report.

The rating agency also said that securitisation can be an attractive investment avenue for banks looking to grow their retail assets.

As the macro-situation and interest rates stabilise, deals may pick up further, propelling the securitisation market volume to reach near pre-pandemic highs.

Securitisation transactions touched highs of Rs.1.9 lakh crore in fiscals 2019 and 2020 before the pandemic put brakes on its momentum, the report said.

Meanwhile, during the first quarter of the current fiscal, securitisation volumes surged to about 70 per cent to about Rs 35,000 crore, owing to increased economic activity.

Further, the base effect caused by low volumes last fiscal due to the second wave of the pandemic also played a part. Q1 volumes this fiscal even surpassed that seen in fiscal 2019, but remained lower than that witnessed in fiscal 2020, the report said.

"In fact, volumes in the first quarter could have been even higher but for the rising inflation and higher interest rates that have spawned caution over the repayment ability of borrowers, and divergent yield expectations among originators and investors," CRISIL Ratings said.

"More than 80 non-bank entities being present in the market in the first quarter, up from about 50 last fiscal, indicates strong comfort originators have with the securitisation process. Market activity in the past quarter also reflected the diversity of various asset classes across secured and unsecured loan categories," said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, : CRISIL Ratings.