The full form of SDI in banking, referring to a financial instrument, is Securitised Debt Instrument.
A Securitised Debt Instrument (SDI) is created when loans or receivables are pooled together and converted into financial securities. This process, known as securitization, allows banks and other financial institutions to remove assets from their balance sheets and raise capital.
In essence, an SDI represents a claim on the underlying pool of assets. Investors purchase these instruments and receive payments based on the cash flows generated by the underlying loans or receivables.
Key characteristics of Securitised Debt Instruments (SDIs):
- Asset-backed: The value of the SDI is derived from the underlying assets, such as mortgages, auto loans, or credit card receivables.
- Traded on the market: SDIs can be bought and sold in the secondary market, providing liquidity for investors.
- Risk diversification: By investing in SDIs, investors can gain exposure to a diversified pool of assets, potentially reducing risk.
- Structured finance product: Securitization involves structuring the cash flows from the underlying assets to create different tranches of securities with varying levels of risk and return.
Therefore, Securitised Debt Instrument is the complete expansion of the acronym SDI within the context of banking and finance.
