Pass-Through Certificates (PTCs)

India achieved a financial milestone with the listing of its first mortgage-backed Pass-Through Certificates (PTCs) on the National Stock Exchange (NSE). Structured by RMBS Development Company Ltd. and backed by LIC Housing Finance’s home loans, this ₹1,000 crore issue marks a pivotal step in deepening India’s housing finance and securitization market.

• The initiative aligns with the Ministry of Finance’s aim to broaden financial inclusion and secondary market liquidity in housing finance.

What Are Pass-Through Certificates (PTCs)?

Definition

• Pass-Through Certificates are fixed-income securities representing an undivided interest in a pool of underlying loans, typically mortgages.

How They Work

• A financial institution pools housing loans and sells them to a Special Purpose Vehicle (SPV).
• The SPV issues PTCs to investors, passing through the monthly repayments (both interest and principal) made by borrowers.
• Investors earn regular income from the mortgage pool, making PTCs a key instrument in asset-backed securities (ABS).

Features of Mortgage-Backed PTCs

• Backed by residential mortgage loans.
• Investors receive scheduled repayments from the pool.
• Issued to diversify risk and enhance liquidity in the mortgage market.

Significance of India’s First Mortgage-Backed PTC Listing

Policy and Market Impact

• Recognized and celebrated by the Department of Financial Services (DFS), Ministry of Finance.
• Facilitates integration of debt markets with housing finance.
• Encourages broader investor participation in the housing loan securitization process.

Broader Benefits

• Boosts confidence in India’s securitization ecosystem.
• Improves liquidity in the housing finance sector.
• Sets a precedent for future mortgage securitization issuances on stock exchanges.