Securitisation: Process, Features and Q2FY26 Volumes
Why in the news
Sale of loans through structured deals is expected to stay weak in Q2FY26 (July-September 2025) at about ₹63,000 crore, below ₹70,000 crore in the same quarter of the previous year.
About securitisation
Illiquid assets such as loans, receivables or mortgages are pooled and turned into tradable securities sold to investors, so the originator gets funds at once.
Objectives
- Free up capital for banks and NBFCs.
- Shift credit risk to investors.
- Improve liquidity in the financial system.
Steps in the process
| Step | What happens |
|---|---|
| Originator | Bank, NBFC or other institution holding assets (home loans, car loans, card receivables) that give future cash flows |
| Pooling | Similar loans bundled to spread risk |
| SPV | Pool sold to a separate legal entity, keeping the assets away from the originator’s balance sheet risk |
| Issuance | SPV issues ABS or MBS, rated by agencies and sold on |
| Investors | Mutual funds, insurers, banks or HNIs; paid interest and principal from the pool’s cash flows |
| Servicing | Originator or a third-party servicer collects EMIs and passes them via the SPV to investors |
Key features
- Liquidity creation and risk transfer away from the originator.
- Diversification for investors, lowering idiosyncratic risk.
- Capital relief helping banks meet regulatory capital rules.
- Structured into tranches: senior, mezzanine, junior.
Exam angle
- Full forms: SPV, ABS, MBS.
- Entity that buys the asset pool: the SPV.
- Q2FY26 projected volume: ₹63,000 crore.