Definition
Direct Assignment
Direct assignment is the sale of a pool of loans by an NBFC or bank directly to another lender, transferring the cash flows and a share of the risk.
In a direct assignment, the originator sells loans (often retail or priority sector pools) to a buyer, usually a bank, which then earns the interest while the seller may continue to service them and retain a minimum risk share. It frees capital and liquidity for the seller.
Unlike securitisation, direct assignment does not create tradable pass-through certificates; it is a bilateral transfer. The RBI's securitisation and transfer-of-loan-exposure norms set minimum holding periods and risk-retention rules to ensure originators keep skin in the game.
Related terms
- Co-Lending Model (CLM)The Co-Lending Model is an RBI framework where a bank and an NBFC jointly fund a loan, sharing the exposure and combining the bank's low-cost funds with the NBFC's reach.
- Securitisation (Loans)Securitisation is the pooling of loans and issuing of tradable securities backed by their cash flows, letting originators raise funds and transfer risk.
- Pass-Through Certificate (PTC)A Pass-Through Certificate is a security issued in a securitisation that passes the principal and interest from an underlying loan pool to investors.
- Priority Sector Lending (PSL)Priority Sector Lending norms require banks to direct a minimum share of their credit to sectors such as agriculture, MSMEs and weaker sections.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.