Securitisation And Synthetic Securitisation In India

Understanding the concept

Securitisation is a process wherein lenders (originators), generally banks, pool their income-generating assets (mortgages, credit card receivables, etc./reference portfolio) and sell them to an issuer such as a special purpose vehicle ("SPV") created specially by a financial entity to purchase the assets.

The SPV in order to buy the assets, raises money by issuing debt securities to the investors in the market. The investors receive fixed or floating payments serviced through the periodic payments made by the borrowers on the mortgages and other loans. In some cases, the originator services the loans in the portfolio, collects payments from the original borrowers, and passes them on after charging a servicing fee directly to the SPV.