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To raise quick funds, banks and NBFCs bundle old loans and sell them to investors, who then earn returns through EMIs, in a process known as debt securitisation
The bank pools together multiple loans and transfer them to a separate entity called a Special Purpose Vehicle. (Representative/Shutterstock)
Debt securitisation is emerging as a significant trend in India, with the market reaching a value of Rs 2.1 lakh crore in 2024. The practice allows banks—who receive regular EMIs from home and car loan borrowers—to free up immediate funds by bundling these loans into packages and selling them to investors. This gives banks instant liquidity for fresh lending or balance sheet strengthening.
The process works much like bonds or securities, offering investors steady returns while easing pressure on lenders.
Why Is Debt Securitisation Gaining Momentum In India?
When banks and NBFCs recover loans in long-term installments, they often need immediate cash to issue new loans or strengthen their balance sheets. In such cases, they turn to debt securitisation. This involves bundling old loans and selling them to investors. In return, the institutions get instant cash, while investors receive monthly EMIs as returns on their investment.
How Does The Debt Securitisation Model Work?
- The bank pools together multiple loans (For example, 1,000 home loans totalling Rs 500 crore).
- These loans are transferred to a separate entity called a Special Purpose Vehicle (SPV).
- The SPV breaks down the loan pool into smaller portions to create securities and sells them to investors.
- As borrowers pay EMIs, the money flows to investors through the SPV.
It’s similar to a restaurant selling gift vouchers in advance—getting the cash now, while the customer dines later.
Debt Securitisation Increases In 2024
A CRISIL report revealed that debt securitisation has seen rapid growth in India in 2024. According to the report, Rs 2.1 lakh crore worth of securitised assets were recorded in 2024, with vehicle loans accounting for the largest share at 42%, followed by microfinance loans at 27%.
Why It’s Important In India
- Increases Liquidity: Banks and NBFCs can raise immediate cash to issue new loans.
- Reduces Risk: If a loan defaults, the risk is transferred to the investor.
- Offers Good Returns: Investors in India can earn returns of 6–8% on secured loans like home loans.
- Boosts The Economy: Loans fuel spending on homes, vehicles, and new businesses, driving economic growth.
Public sector banks like SBI and NBFCs such as HDFC and Bajaj Finance are increasingly adopting this model. The RBI is closely monitoring the entire process to ensure that a crisis like the 2008 US financial meltdown is not repeated.
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