Securitisation and PTCs
How a pool of loans becomes a tradable security, and what a debt fund buys when it buys one
Rules as in force on 16 October 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Open by asking: when a debt fund holds a 'pass-through certificate', whose promise is it relying on? The lender's, the borrowers', or someone else's? By the end they should be able to describe the structure, name the main RBI rules, and say what risk a PTC carries.
Securitisation turns a pool of loans into tradable certificates.
A lender sells a bundle of its loans to a separate entity, which issues certificates. The money the borrowers repay is passed through to whoever holds the certificates.
Trainer notes
The key move is the sale: once the loans are sold to a separate, bankruptcy-remote entity, the investor is relying on the pool of borrowers, not on the original lender's own balance sheet.
Who does what
Four roles turn a pile of loans into a certificate an investor can hold.
The originator
The lender (a bank, NBFC or housing finance company) that made the loans and now sells a pool of them.
The special purpose entity
A separate trust that buys the pool and issues the certificates. Being separate keeps the pool apart from the originator's own troubles.
The pass-through certificate
What the investor holds. It is a share in the pool's cash flows; repayments are passed through to the holder.
The servicer
Usually the originator. It keeps collecting the EMIs and passes the money to the entity, which pays the certificate holders.
Source: RBI (Securitisation Transactions) Directions, 2025, dated 28 November 2025.
Trainer notes
Trusts are the usual entity, mainly for tax pass-through. RBI's own term is 'securitisation note'; 'PTC' is market usage. 'Bankruptcy remote' means the pool belongs to the trust, not the originator's creditors.
What a debt fund actually receives
THE SET-UP
A ₹100 crore pool of home loans is securitised.
Residential-mortgage retention is 5%. The minimum any one investor can put in is ₹1 crore.
- The originator sells the ₹100 crore pool to a trust, which issues PTCs backed by the pool.
- It must keep 5% as skin in the game: ₹100 crore × 5% = ₹5 crore retained.
- A debt fund buys ₹10 crore of PTCs — a 10% share of the pool's cash flows.
- On a month's ₹2 crore of collections, the fund's 10% share is ₹20 lakh, before any fees or credit-enhancement draws.
Result: The fund earns from the borrowers' repayments, not from the originator's own promise.
Illustration with assumed, invented figures. Not a real transaction.
Trainer notes
The 5% is the minimum retention requirement for residential mortgage-backed securities; for other loans it is 5% or 10% by original maturity. The fund's return depends on how many borrowers in the pool keep paying.
Two protections built in
Credit enhancement
A cushion that absorbs early losses so the certificates can earn a higher rating. It can be cash set aside, extra interest kept back, or a first-loss guarantee.
Minimum retention (MRR)
The originator must keep a slice of the pool, so it still loses if the loans go bad. 5% for loans up to 24 months and for home loans; 10% for longer loans.
Take-away: Both reduce risk. Neither removes it: if enough borrowers stop paying, a PTC can still lose value.
Source: RBI (Securitisation Transactions) Directions, 2025.
Trainer notes
Credit enhancement is given only at the start and must last the certificates' life, apart from limited permitted resets. The MRR is the originator's 'skin in the game'; it cannot sell the whole pool and walk away.
The main RBI rules (2021 Directions)
| Rule | What it says |
|---|---|
| Who may originate | Commercial banks (not regional rural banks), all-India financial institutions and NBFCs incl. HFCs. Only standard loans may be securitised. |
| Minimum holding period | The originator must hold a loan first: 3 months if tenor is up to 2 years, 6 months if longer. Counted by time held, not instalments paid. |
| Minimum retention (MRR) | 5% of the pool for loans up to 24 months and for home loans; 10% for longer loans and bullet-repayment loans. |
| Minimum ticket size | ₹1 crore for the certificates, measured as the investment by a single investor (clarified December 2022). |
| Not allowed | Synthetic securitisation, re-securitisation, and credit-card or other revolving receivables. |
Source: RBI (Securitisation Transactions) Directions, 2025, dated 28 Nov 2025; carries forward the 2021 rules.
Trainer notes
The originator's exposure to one structure is capped at 20% of the exposures created. Since December 2022, loans with under 365 days left are barred, with narrow exceptions.
Where the rules stand
Regulatory limits in force on 16 October 2026, not market prices.
- MINIMUM RETENTION
- 5-10%Share of the pool the originator must keep: 5% (loans up to 24 months, home loans) or 10%.
- MINIMUM TICKET
- ₹1 crSmallest investment one investor can make in the certificates.
- ORIGINATOR CAP
- 20%The most of one securitisation the originator itself may hold, including the retained slice.
Source: RBI (Securitisation Transactions) Directions, 2025.
Trainer notes
The ₹1 crore minimum per investor keeps PTCs out of small retail hands directly; a retail investor's exposure comes through a debt fund. These are rules, not price data, so the latest position is used.
How a debt fund holds PTCs
As a debt holding
A PTC sits in a debt scheme's portfolio alongside its bonds. Its cash flows come from the loan pool behind it.
Rated and valued
A scheme may hold asset- or mortgage-backed securitised debt. The PTC is valued for NAV each day.
Exposure limits
One issuer's debt and mortgage-backed securitised debt is capped at 10% of NAV, 12% with both boards' approval.
A different risk
The risk is the pool's borrowers, not a single company. Diversified pools spread it; a weak pool concentrates it.
Source: SEBI Master Circular for Mutual Funds, 20 Mar 2026, para 13.1 (MF Regulations, 2026).
Trainer notes
Government securities and treasury bills are outside the single-issuer cap. SEBI also allows a separate sector exposure for securitised debt backed by retail and affordable-housing loans. Exact limits are set in the scheme documents; confirm the current figures before quoting them.
If you learnt this from older material
What older decks say
- PTCs are issued by banks to offload risk.
- The rules are the 2006 RBI guidelines.
- The holding period is counted in instalments paid.
- There is no single minimum ticket size.
What holds now
- NBFCs and housing financiers issue them too, via a trust.
- RBI's 2025 Directions carry forward the 2021 rules.
- The holding period is counted by time held.
- The minimum is ₹1 crore per investor.
Take-away: The structure is old; the rulebook was rewritten in 2021 after fifteen years and re-issued in 2025.
Source: RBI (Securitisation Transactions) Directions, 2025; 2021 Directions repealed the 2006 guidelines.
Trainer notes
The 2021 Directions also widened what can be securitised (single-asset and purchased loans are now allowed) and tightened retention and disclosure. Older training predates all of this.
Four things people get wrong
Misconception'A PTC is backed by the bank.'
What is trueOnce the pool is sold, the investor relies on the borrowers in the pool, not the originator's balance sheet.
Misconception'Credit enhancement makes it safe.'
What is trueIt absorbs early losses only. If enough borrowers default, the cushion runs out and the PTC can lose value.
Misconception'Securitised debt equals a company bond.'
What is trueA bond is one borrower's promise. A PTC is a share in many borrowers' repayments, with its own risks.
Misconception'I can buy a PTC for a few thousand rupees.'
What is trueThe minimum is ₹1 crore per investor. A retail saver gets exposure through a debt fund, not directly.
Check yourself
Question 1: A ₹200 crore pool of home loans is securitised. What is the minimum the originator must retain, and why does the rule exist?
Answer: Home loans (residential mortgage) carry a 5% minimum retention: ₹200 crore × 5% = ₹10 crore. The rule keeps the originator with skin in the game, so it still loses if the loans go bad.Question 2: A client asks: 'My debt fund holds a PTC. Whose promise am I relying on?' How do you answer?
Answer: The borrowers in the underlying loan pool, not the originating lender. The pool was sold to a separate trust, so the fund earns from the borrowers' repayments. Credit enhancement cushions early losses but does not remove the risk.Question 3: Name two things the RBI's 2021 Directions require in a securitisation.
Answer: Any two of: a minimum retention of 5% or 10% of the pool; a minimum holding period before securitising (counted by time held); a ₹1 crore minimum investment per investor; only standard loans may be securitised; the originator's own exposure capped at 20%.
Sources and disclaimer
Sources for the figures in this explainer
- Securitisation structure (originator, special purpose entity, pass-through certificate, servicer, bankruptcy remoteness), credit enhancement: RBI Securitisation Directions, 28 Nov 2025.
- Minimum retention 5% (loans up to 24 months, residential mortgage-backed securities), 10% (longer, bullet-repayment loans): RBI Directions, 2025.
- Minimum ticket ₹1 crore, measured as a single investor's investment (clarified Dec 2022); originator exposure capped at 20%; loans with under 365 days left ineligible: RBI Directions, 2025.
- Minimum holding period measured by time held, not instalments paid; synthetic and re-securitisation prohibited: RBI Securitisation Directions, 2025.
- Single-issuer debt cap of 10% of NAV (12% with board approvals); mortgage-backed securitised debt rated not below investment grade: SEBI Master Circular, 20 Mar 2026, para 13.1.
- All amounts in the worked example are invented for illustration and are not a real transaction.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).