SBI Weighs Mortgage-Backed Securities to Fund Loan Growth

India's securitization market is small, and retail home loans make up a tiny slice. Total securitization volumes rose 5% to ₹2.5 trillion in FY26, per Icra estimates. A small portion came from residential mortgage-backed securities. The market was driven by a few high-value corporate deals, unlike FY25 when large commercial banks led issuance, the ratings firm said in a June 4 note.

SBI's home loan portfolio stood at ₹9.4 trillion as of March 31, giving it a 28.1% market share, up from 27.3% a year earlier. Gross bad loans in the book were 0.6% in FY26, down from 0.7%. The portfolio grew 13.7% in the fiscal year.

Non-bank lenders have used securitization widely. SBI's entry with a large pool of prime mortgages could deepen the market. Setty said the bank is working on packaging the assets and identifying potential investors, mainly non-bank participants. He gave no timeline.

The government has taken steps to spur the mortgage-backed securities market. In January 2025, the National Housing Bank-backed RMBS Development Co. received RBI approval to act as a market intermediary. Four months later, the first RMBS Development Co.-structured securities, backed by home loans from LIC Housing Finance worth ₹1,000 crore, listed on the National Stock Exchange.

Some experts see hurdles. Prakash Agarwal, a partner at debt market advisory firm Gefion Capital Advisors, said SBI's home loan pricing is fine, so underlying yields are likely only modestly above sovereign securities. Once securitized, pools would typically be placed at a discount, making effective spreads even tighter.

Mortgage loans also have shorter effective tenors than contractual maturities because of prepayments and refinancing, Agarwal said. That brings reinvestment risk and reduces duration visibility for investors. Still, he said high-quality assets like SBI's should find natural demand from long-term institutions such as insurance companies and pension funds.