← Critical Product/Equipment/Process: Consumer, Media & Financial Services (all topics)
Securitisation & direct assignment (DA)
What it is
Selling loan pools to another lender - either as pass-through certificates through a special purpose vehicle (securitisation) or as a bilateral direct assignment of the loans themselves. The originator usually retains servicing and a minimum risk share
For HFCs and NBFCs it is a core funding tool, since banks buy retail pools to meet priority sector targets and deploy liquidity
Impact on industries
- Releases capital and liquidity without adding leverage - assets move off balance sheet, freeing capacity to originate on the same equity base
- Priority sector eligibility of housing pools creates reliable bank demand, often at better pricing than the originator's own borrowing cost
- Upfront gain on assignment is booked at sale, supporting reported earnings and return on equity
- That accounting front-loads income, so a growth slowdown removes the gains and reported profit falls faster than the underlying book
- Retained risk and servicing mean exposure is not fully transferred, and pool performance still reflects on the originator