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BFSI Chronicle, 11 Edition September2022
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Pass-Through Certifi cates: In Pass-Through  If collection is made by the Original Borrower,

Certificates, direct participation in the Cash Flow he is under obligation to Pass on the Money to
is Sold. Receipt of Asset Cash Flow is deposited in Asset Reconstruction Company.
designated accounts. These funds are then passed  The ARC Passes on these Amounts to

on to Certificate Holders and the Receivables are Individual Investors.
directly assigned to Investors through SPV. In
simple terms, the Cash is collected by the Original Securitisation helps in Recycling and
Lender which is then passed on to SPV (Asset Rollover of Assets:
Reconstruction Company). For Investors, Securitisation provides an
avenue for relatively Less Risk or Risk-free
Pay Through Certifi cates: This certifi cate involves Investment. The Credit enhancement provides
a Specific Assignment / Sale of Asset Cash Flow an Opportunity for Investors to acquire Good

to the SPV. The SPV then issues the pay-through Quality Assets and they can also diversify
Certificates to the Investors. In simple terms, Pay their Portfolios.

through certificates are issued when the Cash is

collected by the SPV from the Borrower and then From the Point of view of the Broader Financial
distributed to the Certifi cate Holders. System, Securitisation increases the Number of
Debt Instruments and provides additional Liquidity
Summary of Process: The Process can be in the Market. Further, it also facilitates better
summarised as follows: Allocation, unbundling and Management of Project
Risks. It could also widen the market by attracting
 Lender Sells Various Types of Loans to New Players as it makes Superior Quality Assets
Borrowers. available for investment.

 Out of these Loans, the Lender Packs certain Credit Rating:
Loans together and Sells these to Asset The Credit Rating is to be considered for the
Reconstruction Company (ARC). transaction of the Assets Securitised and not for
the Originator or the Issuer. Thus, it is possible
 The Asset Reconstruction Company (ARC) that the Credit Rating of the Securitised Assets will
makes payment to the Original Lender for be quite different from the Credit Rating of the
Loans Purchased. Originator. In an extreme case, the securitised assets
are still considered good even if the Originator is
 These Loans are converted into a Pool of Liquidated and the Investor of the Securitised Asset
Securities by the Asset Reconstruction will be Protected.
Company for purpose of issuing Pass Through
or Pay Through Certifi cates (PTC). Similarly, the Asset Reconstruction Company does
not own the Assets and hence even if it goes into
 These PTCs are sold to Individual Investors Liquidation, the Security of the Investor does not get
[QBs]. affected. This ensures ‘Bankruptcy Remoteness’.
Thus, Securitisation Transactions may have a
The Recoveries from the Original Borrower are higher Credit Rating than the Credit Rating of the
obtained by the Original Lender (In case of Originator / Issuer himself.
Pass-Through Certificates) and by the Asset

Reconstruction Company (In case of Pay Benefi ts of Securitisation: Securitisation is designed
Through Certifi cates). to offer several advantages to the Seller, Investor
and Debt Markets. The advantages of Securitisation

The Institute Of Cost Accountants Of India

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