Banking · Securitization and SARFAESI Act
Securitization is a process used by financial institutions to transform illiquid assets into marketable securities. This involves pooling assets like housing loans or vehicle loans and selling them to a Special Purpose Vehicle (SPV), which then issues Pass-Through Certificates (PTCs) to investors. In the context of the SARFAESI Act and the RBI guidelines, which of the following statements correctly identifies a core component of the securitization process?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The Originator is the entity that buys the PTCs from the SPV to ensure that the risk is retained within the banking system.
- 2The SPV is a bankruptcy-remote entity that ensures the pooled assets are insulated from the financial condition of the Originator.✓
- 3Securitization is only permitted for non-performing assets (NPAs) to help banks clear their balance sheets of toxic debt.
- 4Investors in securitized paper have a direct legal claim on the total global assets of the bank that originated the loans.
Correct answer
The SPV is a bankruptcy-remote entity that ensures the pooled assets are insulated from the financial condition of the Originator.
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