SBI Eyes Securitization: Home Loans Go to Market

State Bank of India (SBI), India's largest lender, is actively exploring the securitization of a portion of its substantial home loan portfolio. This initiative is driven by the bank's need to diversify funding sources beyond deposits and enhance its lending capacity. SBI's chairman indicated that the bank possesses a significant ₹10 trillion mortgage book that could be monetized through mortgage-backed securities, creating liquidity while offering attractive returns to investors.

This potential move by SBI comes at a time when Indian banks are experiencing deposit growth that lags behind loan expansion. The securitization market in India is relatively small, with retail home loans constituting a minor segment. However, the participation of a major institution like SBI is anticipated to significantly boost market sentiment and deepen the market. India's securitization volumes grew to ₹2.5 trillion in FY26, primarily driven by corporate transactions.

Despite the positive outlook, experts acknowledge implementation challenges. Structural issues, such as the potential for tighter spreads due to the fine pricing of SBI's loans and reinvestment risks associated with prepayments, could affect investor appetite. Nonetheless, high-quality assets are expected to attract long-term institutional investors like insurance companies and pension funds. Recent efforts to spur the mortgage-backed securities market include the approval of RMBS Development Co Ltd and the listing of India's first structured MBS on the National Stock Exchange.