Pass-Through Certificates (PTCs) and Direct Assignments (DAs) are the two dominant onshore securitisation structures in India. They are often discussed interchangeably and treated as close substitutes. They are not. The legal form, regulatory treatment, economics, and practical implications differ in ways that routinely matter for how a transaction should be structured.
This note lays out the comparison. It is intended for finance teams at originators considering either route, and for investors evaluating the difference in their portfolios.
Legal form
A PTC is a security — a certificate issued by a trust that holds a pool of receivables. Investors buy certificates; the trust holds the underlying loans; cashflows from the pool are passed through to investors through a defined waterfall. The pool is bankruptcy-remote from the originator because it sits inside a separate legal vehicle (typically a private trust).
A Direct Assignment is a contractual transfer of a pool of loans from the originator to the purchaser. The purchaser becomes the economic owner of the loans. There is no trust, no certificate, and no security instrument. The transaction is closer in form to an outright sale of receivables.
This difference flows through to almost everything else.
Investor base
PTCs are tradable securities and can be listed. The investor base is broad: banks, mutual funds, AIFs, insurance companies, and qualified foreign investors. Secondary trading happens, though liquidity is limited for all but the most standard pool types.
DAs are not tradable. The assignee holds the pool directly. The investor base is therefore narrower — typically banks and large NBFCs buying for their own book, often with a specific priority-sector or portfolio-building objective. DAs between two financial entities are common; DAs to a capital-markets investor base are unusual.
Regulatory treatment
Both structures sit under the RBI’s Master Direction on Securitisation of Standard Assets (2021) and the related Master Direction on Transfer of Loan Exposures. The framework distinguishes them explicitly.
For PTCs, the framework imposes:
- Minimum Retention Requirement (MRR) on the originator (typically 5% or 10% depending on pool tenor)
- Minimum Holding Period (MHP) on the underlying loans before they can be pooled
- Restrictions on tranche structure and credit enhancement sizing
- Requirement for an independent trustee and independent valuation at origination
- Ongoing servicing and reporting obligations
For DAs, the framework imposes:
- The same MHP requirements on underlying loans
- MRR-equivalent retention on the assignor (effectively 10%)
- Restrictions on the assignor providing credit enhancement
- True-sale tests to ensure the transaction is not treated as secured lending
Crucially, capital treatment and risk-weighting for the assignee differ between PTC subscription and DA purchase. Bank portfolios frequently prefer one or the other for capital reasons, and this is often the primary driver of structure selection in practice.
Credit enhancement and tranching
PTCs support tranched structures — senior and subordinated notes, often with cash collateral, over-collateralization, and liquidity reserves. This tranching is what allows investors with different risk appetites to participate in the same pool, and what supports rating outcomes for senior tranches.
DAs do not support tranching in the same way. The assignee takes pool-level exposure. Credit enhancement in a DA, to the extent permitted, typically takes the form of a first-loss guarantee from the assignor — which is now tightly restricted under the 2021 framework.
If the objective is to create a AAA-rated senior tranche backed by an underlying pool with mixed credit profile, the PTC structure is almost always the required answer. If the objective is to transfer a homogeneous pool to a single buyer at pool-level pricing, a DA is typically cleaner.
Risk transfer and true sale
Both structures are designed to be true sales — the pool moves off the originator’s balance sheet. In practice, tax, accounting, and regulatory true-sale tests can diverge, and originators regularly discover that the treatment they assumed for one purpose does not hold for another.
Accounting derecognition under Ind AS 109 requires an assessment of whether the originator has transferred substantially all risks and rewards. PTCs can fail this test if the originator retains significant credit enhancement or residual positions. DAs, with their more direct transfer, often clear it more easily — but can fall short if the assignor has provided any recourse or deferred consideration.
This is one of the most common sources of structural rework in Indian securitisation: a PTC structure designed around regulatory capital release that fails accounting derecognition because too much residual risk has been retained, forcing a restructure late in the process.
Economics: who uses which structure, and why
Simplifying significantly:
- PTCs are the right answer when the originator needs capital-market distribution, a broad investor base, tranched pricing, or a rating on senior debt. Retail-loan securitisations (ABS on personal loans, auto loans, two-wheelers), RMBS, and large MFI pool transactions are almost always PTCs.
- DAs are the right answer when a single buyer (typically a bank) wants to acquire a homogeneous pool for portfolio-building or priority-sector compliance, and neither party needs secondary tradability or senior-tranche rating uplift. Priority-sector DAs between banks and NBFCs are the archetypal case.
- Hybrid structures — a DA of a core pool combined with a separate PTC issuance, or a PTC with a parallel DA of the retained tranche — are occasionally used for specific regulatory or portfolio objectives. These require careful structuring to avoid unintended consequences.
What this means for valuation
For a portfolio holding both PTCs and DA positions, two practical valuation considerations matter.
First, PTC positions can (in theory) be benchmarked against observable market pricing for comparable tranches, where trading data exists. DA positions must be valued bottom-up from pool performance — there is no observable market.
Second, the credit enhancement structure of a PTC means that senior and subordinated positions in the same underlying pool can have dramatically different valuations and sensitivity profiles. This is not an issue for DAs, which are pool-level exposures.
Both points matter for LP reporting, financial statement valuation, and internal risk management.
A short checklist before structuring
Before committing to PTC or DA for a transaction, originators should confirm:
- Distribution objective — capital-markets tranching or single-buyer pool sale?
- Rating objective — is senior-tranche rating required to achieve target pricing?
- Accounting outcome — will the intended structure achieve derecognition under Ind AS 109?
- Capital outcome — will the structure release regulatory capital consistent with the originator’s capital plan?
- Investor alignment — does the intended investor base actually want the structure on offer?
Getting any of these wrong late in the process is expensive. Getting them right at the structuring stage is what a specialist adviser is for.
For a valuation, structuring, or portfolio question on a specific PTC or DA position, get in touch.
