India’s largest lender, State Bank of India (SBI), is “seriously considering” securitizing part of its home loan portfolio, chairman C.S. Setty said in an interview with Mint, as the bank prepares to diversify its funding sources beyond deposits to boost lending.
Setty did not disclose what portion of its nearly ₹10 trillion home loan book the bank may put up for securitization, which involves pooling of assets and selling securities backed by them.
As with other banks, SBI also has “quite a lot of illiquid assets” on its balance sheet, the chairman said. “In our case, we have a ₹10 trillion mortgage book. So how do I monetize that? We are seriously considering how to bring mortgage-backed securities to market and create a liquidity pool for us while delivering good returns to investors.”
To be sure, India’s market is relatively small, of which retail home loans account for an even tinier share. While experts do see the proposal being far from easy to implement, the bellwether’s move in this direction is seen significantly lifting sentiment in the securitization market.
Deposit dynamics
Indian banks have been grappling with a deposit growth slower than the pace at which their loan books are expanding. Customers’ appetite for loans remains insatiable while the lure of deposits is weak amid alternative avenues such as market investments fuelling a shift in savings and investment trends.
While deposits in the overall banking system were up 12% year-on-year at the end of May, loans expanded 17.4%, per data from the . At SBI, loans grew 16.9% in fiscal year 2026 (FY26), while deposit growth was at 11%.
“As we go forward, the liability side of banks’ balance sheets will definitely take a different form; it will not be purely funded by deposits. I think, going forward, there will be bonds and other market instruments coming into play,” said Setty, seated on the 18th floor of the bank’s headquarters in Mumbai.
Banks need to prepare for this upcoming shift in the liability profile, although it may not happen in the next three to five years. “If we can bring in a structure and the right package, with an institution like SBI backing it up, investors need not worry about the underlying asset, the return, or the asset quality,” said the chairman.
While non-banks have widely been using the securitization route, SBI’s entry with its large pool of assets is expected to deepen the market.
India’s total securitization volumes grew 5% to ₹2.5 trillion in FY26, per estimates by Icra. A small portion of this amount is estimated to be through securities backed by retail home loans. These volumes were largely driven by a handful of high-value corporate securitization transactions, unlike FY25, when volumes were primarily supported by issuances by large commercial banks, said the ratings firm in a note on 4 June 2026.
With a home loan portfolio of ₹9.4 trillion, SBI commands a market share of 28.1% as of 31 March 2026, up from 27.3% in FY25, and 26.5% in FY24, according to data from the bank’s investor presentations. The state-owned lender reported a gross bad loan ratio of 0.6% in its home loan book in FY26, as against 0.7% in the previous financial year. The portfolio grew 13.7% in FY26.
“We need to figure out how to package these assets, who the potential investors are, and how to bring both investors and our own structures to the fore,” said Setty. “We are working on it seriously, and there is no timeline right now and we want to bring mainly non-bank participants into this market.”
Challenges ahead
The size of India’s mortgage-backed securities market, however, remains small, and the government has taken steps to spur this demand. In January 2025, the National Housing Bank (NHB)-backed RMBS Development Co Ltd (RDCL), a market intermediary to facilitate the growth and development of the home mortgage-backed securitization market, had received approval from the Reserve Bank of India.
Four months later, India’s first mortgage-backed securities structured by RMBS Development Co Ltd were listed on the National Stock Exchange. These are backed by a pool of home loans from Housing Finance Ltd worth ₹1,000 crore.
A section of experts sees challenges in implementation of SBI’s securitization plans. Prakash Agarwal, a partner at debt market advisory firm Gefion Capital Advisors said while the transaction could be a key step towards deepening India’s retail mortgage-backed securities market and expanding the investor base for securitized assets, there are structural challenges that could constrain demand.
“Given the fine pricing of SBI’s home loan portfolio, the underlying yields are likely to be only modestly above sovereign securities. Once securitized, these pools would typically be placed at a discount, making the effective spreads even tighter,” said Agarwal.
He said mortgage loans tend to have significantly shorter effective tenors than their contractual maturities because of prepayments and refinancing, which brings in reinvestment risk and reduces the duration visibility for investors.
While these factors may limit appetite among yield-seeking investors and narrow the buyer universe, Agarwal said such high-quality assets should find natural demand from long-term institutions such as companies and pension funds.