Securitisation Industry Playbook
Part of the Financial Services sector Securitisation is the process of converting illiquid financial assets (loan pools, receivables, future cash flows) into...
Part of the Financial Services sector
Industry Overview
Securitisation is the process of converting illiquid financial assets (loan pools, receivables, future cash flows) into tradeable securities. In India, this is a ₹1.9+ lakh crore market where NBFCs, HFCs, and banks package loan portfolios and sell them to investors — unlocking capital, managing risk, and enabling credit flow to underserved segments.
Key participants in India
| Role | Key Players | Function |
|---|---|---|
| Originators | NBFCs (Bajaj Finance, Shriram), HFCs, Banks | Create loan assets, sell to SPV |
| Arrangers/Platforms | Northern Arc, Vivriti Capital, PTC/STCL | Structure deals, find investors |
| Investors | Mutual funds, banks, insurance cos, DFIs | Buy securitised paper for yield |
| Rating agencies | CRISIL, ICRA, CARE | Rate tranches (AAA to BB) |
| Trustees | IDBI Trusteeship, SBICAP | Hold SPV assets in trust |
Why this industry matters
- Capital recycling — NBFCs/HFCs can lend ₹100 Cr, securitise ₹70 Cr, and lend that ₹70 Cr again
- Priority Sector Lending — banks buy NBFC securitised pools to meet RBI's PSL targets without originating themselves
- Yield for investors — securitised paper offers 50-150bps premium over corporate bonds of similar rating
- Financial inclusion — enables smaller NBFCs to access institutional capital by securitising their books
- India's market growing 20%+ annually — RBI reforms (2021 securitisation framework) have enabled growth
What you will learn
- Industry Overview: How securitisation works in India, types (PTC, DA, co-lending), and regulatory framework
- Key Metrics: Pool performance, collection efficiency, first-loss coverage, and portfolio seasoning
- Competitive Landscape: Arrangers vs originators, platform models, market share dynamics
- Risks & Red Flags: Credit risk layering, moral hazard, regulatory changes, and pool deterioration
- Valuation Framework: Platform economics (fee-based vs balance-sheet), yield spreads, and AUM-based valuation
Quick navigation
| Lesson | Focus |
|---|---|
| Industry Overview | How securitisation works, types of structures, regulatory framework |
| Key Metrics | Collection efficiency, pool performance, credit enhancement, originator quality |
| Competitive Landscape | Arrangers, platforms, market share, competitive positioning |
| Risks & Red Flags | Credit layering, moral hazard, concentration, regulatory shifts |
| Valuation Framework | Platform vs balance-sheet models, fee income, growth multiples |
Start here
Begin with the Industry Overview to understand the mechanics of securitisation in India, then use Key Metrics to evaluate pool quality and originator strength.
1. Securitisation — Industry Overview
Securitisation (Financial Services sector)
What you will learn
How securitisation works in India — the mechanics of converting loan pools into securities, types of structures (PTC, DA, co-lending), the 2021 RBI framework, and why this industry is critical for India's credit ecosystem.
The business model: Converting loans into tradeable paper
Securitisation is financial alchemy — turning illiquid, non-tradeable loan assets (a portfolio of vehicle loans, microfinance loans, or mortgages sitting on an NBFC's balance sheet) into tradeable securities that institutional investors can buy.
Why originators securitise
| Motivation | Explanation |
|---|---|
| Capital recycling | Sell existing loans → free up capital → originate more → grow faster without raising equity |
| PSL compliance | Banks buy NBFC pools (tagged as PSL) to meet RBI's priority sector targets |
| ALM management | Match long-term assets with appropriate liability tenor |
| Diversification | Reduce single-borrower concentration by selling parts of the book |
| Lower cost of funds | Securitised paper rated AAA costs less than NBFC's own borrowing rate |
🗣️
"Securitisation basically ek NBFC ko ek factory mein badal deta hai — loans originate karo, package karo, becho, repeat. Capital ki zaroorat minimize ho jati hai, growth maximize."
Types of securitisation in India
1. Pass-Through Certificates (PTCs)
The classic structure — loans are transferred to a Special Purpose Vehicle (SPV/Trust), which issues PTCs to investors. Cash flows from borrower EMIs pass through to PTC holders.
Key features:
- True sale of assets (off balance-sheet for originator)
- SPV is bankruptcy-remote (originator's default doesn't affect investors)
- Rated by CRAs (typically AAA to A)
- Most common type in India (70% of market)
2. Direct Assignments (DAs)
Bilateral sale of a loan pool directly from originator to a single buyer (usually a bank) — no SPV involved.
Key features:
- Simpler structure (no trusteeship, no PTC issuance)
- Typically bank-to-bank or NBFC-to-bank
- Not "true" securitisation technically — but classified together by RBI
- ~25% of total market volume
3. Co-lending / Co-origination
A hybrid where bank and NBFC jointly originate a loan (80:20 split typically). Not securitisation per se, but functionally similar — NBFC sources and services, bank provides balance sheet.
Key features:
- RBI introduced in 2020 to boost credit flow
- NBFC retains 20% skin-in-game (first loss)
- Bank gets PSL credit for its 80% share
- Growing rapidly — ₹50,000+ Cr outstanding
The tranching structure
Securitised pools are often split into tranches with different risk-return profiles:
| Tranche | Rating | Risk | Yield | Investor Type |
|---|---|---|---|---|
| Senior (A1) | AAA | Lowest — protected by subordination | 8-9% | Mutual funds, insurance |
| Mezzanine (A2) | AA/A | Medium — absorbs losses after equity | 10-12% | Banks, HNIs |
| Equity/First Loss (B) | Unrated | Highest — first to absorb defaults | 15-20%+ | Originator retains this |
Credit enhancement: The originator retains the first-loss piece (5-15% of pool value), meaning investor losses only begin after originator's equity is wiped out.
$$\text{Credit Enhancement} = \frac{\text{First Loss Piece + Cash Collateral}}{\text{Total Pool Value}} \times 100$$
Investor's perspective
AAA-rated PTC from a good originator = virtually zero credit risk for the senior tranche. You're getting ~100bps extra yield over corporate AAA bonds for essentially similar risk. That's the arbitrage.
Regulatory framework (RBI 2021)
RBI overhauled securitisation rules in September 2021:
| Rule | Requirement | Purpose |
|---|---|---|
| Minimum Retention (MRR) | Originator must retain 5-10% of each pool | Align originator incentives with investors |
| Minimum Holding Period (MHP) | Loans must be 6+ months old before securitisation | Prevent originate-to-distribute moral hazard |
| True Sale criteria | Legal separation from originator's bankruptcy estate | Protect investors |
| Capital relief | Only if true sale + de-recognition criteria met | Incentivize proper structuring |
| Disclosure | Monthly pool performance data to investors | Transparency |
| Simple, Transparent, Comparable (STC) | Label for qualifying securitisations | Preferential capital treatment for investors |
Market size and growth
| Year | Total Securitisation Volume (₹ Cr) | Growth |
|---|---|---|
| FY20 | 1,20,000 | - |
| FY21 | 75,000 | -38% (COVID) |
| FY22 | 1,30,000 | +73% |
| FY23 | 1,65,000 | +27% |
| FY24 | 1,92,000 | +16% |
| FY25E | 2,30,000 | +20% |
Key underlying asset classes:
- Vehicle loans (30-35% of market)
- Microfinance/small loans (20-25%)
- Mortgages/housing loans (15-20%)
- Gold loans, consumer loans, LAP (20-25%)
What to check next
- Move to Key Metrics to learn pool performance analysis
- Explore companies in this space on the Screener
2. Securitisation — Key Metrics
Securitisation (Financial Services sector) The critical metrics for evaluating securitisation pools and platforms — collection efficiency, pool performance r...
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3. Securitisation — Competitive Landscape
Securitisation (Financial Services sector) How India's securitisation market is structured — the key platforms, arrangers, and originators; competitive dynam...
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4. Securitisation — Risks & Red Flags
Securitisation (Financial Services sector) What can go wrong in securitisation — moral hazard in originatetodistribute models, pool deterioration signals, co...
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5. Securitisation — Valuation Framework
Securitisation (Financial Services sector) How to value securitisation businesses — distinguishing assetlight platforms from balancesheet players, appropriat...
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