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DEBT SECURITISATION ININDIAN FINANCIAL SYSTEM
IN PARTIAL FULFILLMENT OF THE REQUIREMENT UNDER
SEMESTER BASED CREDIT & GRADING SYSTEM FOR POST
GRADUATE SEMESTER I
PROGRAM UNDER FACULTY OF COMMERCE
MASTER OF COMMERCE (MORNING)
SYDENHAM COLLEGE OF COMMERCE & ECONOMICS
SUBMITTED BY:
PANKAJ DAFDA
ROLL NO.7
PROJECT GUIDE
MS. SMITA KUNTAY
(Pro!""or)
SYDENHAM COLLEGE OF COMMERCE &
ECONOMICS
#$%'#$%
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ACKNOWLEDGEMENT
I would frstly like to thank the “UNIVERSITY OF U!"I# $or %i&in%
us the li'erty o$ (hoosin% su(h to)i( whi(h will 'e 'enefted to us in
$uture* I would like to thanks the +rin(i)al o$ Sydenha, -olle%e Dr.
ANNASAHEB KHEMNAR $or %i&in% ,e the o))ortunity to study inthis estee,ed (olle%e and doin% the (ourse o$ !"N.IN/ "N0
FIN"N-E* I would like to e)ress ,y sin(ere %ratitude and thanks
to MS. SMITA KUNTAY * who is ,y )roe(t %uide3 as he has 'een
the %uidin% li%ht $or this )roe(t and has also )ro&ided ,e with the
'est o$ ,y knowled%e3 ad&i(e and en(oura%e,ent whi(h hel)ed
,e in su((ess$ul (o,)letion o$ ,y )roe(t*
y s)e(ial thanks to ,y )arents and (lass,ates who ha&e also
su))orted and en(oura%ed ,e3 the su((ess o$ this )roe(t to thelar%e etent is also dedi(ated to the,*
I would also like to thank all those who ha&e hel)ed ,e and who, I
ha&e $or%otten to ,ention in this s)a(e*
SIGNATURE OF STUDENT:
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CERTIFICATE
This is to (erti$y that MR*PANKAJ DAFDA o$ *(o,5
I6,ornin%7 1st* se,ester 628195281:7 has su((ess$ully
(o,)leted the )roe(t on “DEBT SECURITISATION IN
INDIAN FINANCIAL SYSTEM#* under the %uidan(e o$MS. SMITA KUNTAY
+roe(t %uide;
Internal ea,iner;
Eternal ea,iner;
0"TE;
+
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Sr*no* -ontents
"-.NO>
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Securitization is te !inancial "ractice o! "oolin# $arious t%"es o! contractual &e'tsuc as resi&ential (ort#a#es) co((ercial (ort#a#es) auto loans or cre&it car&&e't o'li#ations an& sellin# sai& &e't as 'on&s) "ass*trou# securities) to $ariousin$estors. Te "rinci"al an& interest on te &e't) un&erl%in# te securit%) is "ai&
'ac+ to te $arious in$estors re#ularl%. Securities 'ac+e& '% (ort#a#e recei$a'lesare calle& (ort#a#e*'ac+e& securities) ,ile tose 'ac+e& '% oter t%"es o!recei$a'les are asset*'ac+e& securities. Te so*calle& lo,er ris+ o! securitise&instru(ents attracts a #reater nu('er o! in$estors see+in# to 'ene!it in te "rocesso! ta+in# (an% in&i$i&ual assets an& re"ac+a#in# te( as -ollateralize& &e'to'li#ation.it te clai(e& i# &e#ree o! "re&icta'ilit% in lar#e #rou"s an& assu(e&
"re&icta'ilit%) in$estors usuall% "re!er ta+in# on ris+) as a er&) rater tan te totale/"osure inerent in &irect in$est(ent in in&i$i&ual assets. Unli+e #eneral
cor"orate &e't) te cre&it 0ualit% o! securitise& &e't is non*stationar% &ue tocan#es in $olatilit% tat are ti(e* an& structure*&e"en&ent. I! te transaction is
"ro"erl% structure& an& te "ool "er!or(s as e/"ecte&) te cre&it ris+ o! alltrances o! structure& &e't i("ro$es1 i! i("ro"erl% structure&) te a!!ecte&trances ,ill e/"erience &ra(atic cre&it &eterioration an& loss.In &e$elo"in# countries) ca"ital (ar+ets are un&er&e$elo"e&) e0uit% (ar+ets a$eli(ite& "u'lic "artici"ation an& tra&a'le &e't (ar+ets are still in teir earl% sta#e o! &e$elo"(ent. Te in$estors ,o see+ !un&s !or in$est(ents a$e tra&itionall%o'taine& teir !inancin# !ro( co((ercial an& &e$elo"(ent 'an+s rater tan !ro(te ca"ital (ar+ets. 2ut ere a#ain) te ran#e o! !inancial ser$ices an& "ro&uctso!!ere& '% !inancial inter(e&iaries is 0uite li(ite& in co("arision to te ran#e o! !inancin# o"tions no, a$aila'le in &e$elo"e& !inancial s%ste(s.A#ain) !ro( anoter an#le also) secritisation is a 'oon to !inancial institutions.Fro( te ris+ (ana#e(ent "oint o! $ie,) te len&in# !inancial institutions a$e toa'sor' te entire cre&it ris+ '% ol&in# te cre&it outstan&in#s in teir o,n
"ort!olio. Securitasion o!!ers a #oo& sco"e !or ris+ &i$ersi!ication.
D!*+o*
http://en.wikipedia.org/wiki/Mortgage-backed_securities%20%5C%20Mortgage-backed%20securitieshttp://en.wikipedia.org/wiki/Asset-backed_securities%20%5C%20Asset-backed%20securitieshttp://en.wikipedia.org/w/index.php?title=Securitised_instruments&action=edit&redlink=1%20%5C%20Securitised%20instruments%20(page%20does%20not%20exist)http://en.wikipedia.org/w/index.php?title=Securitised_instruments&action=edit&redlink=1%20%5C%20Securitised%20instruments%20(page%20does%20not%20exist)http://en.wikipedia.org/wiki/Investors%20%5C%20Investorshttp://en.wikipedia.org/wiki/Collateralized_debt_obligation%20%5C%20Collateralized%20debt%20obligationhttp://en.wikipedia.org/wiki/Collateralized_debt_obligation%20%5C%20Collateralized%20debt%20obligationhttp://en.wikipedia.org/wiki/Herd%20%5C%20Herdhttp://en.wikipedia.org/wiki/Corporate_debt%20%5C%20Corporate%20debthttp://en.wikipedia.org/wiki/Credit_quality%20%5C%20Credit%20qualityhttp://en.wikipedia.org/wiki/Stationary%20%5C%20Stationaryhttp://en.wikipedia.org/wiki/Asset-backed_securities%20%5C%20Asset-backed%20securitieshttp://en.wikipedia.org/w/index.php?title=Securitised_instruments&action=edit&redlink=1%20%5C%20Securitised%20instruments%20(page%20does%20not%20exist)http://en.wikipedia.org/w/index.php?title=Securitised_instruments&action=edit&redlink=1%20%5C%20Securitised%20instruments%20(page%20does%20not%20exist)http://en.wikipedia.org/wiki/Investors%20%5C%20Investorshttp://en.wikipedia.org/wiki/Collateralized_debt_obligation%20%5C%20Collateralized%20debt%20obligationhttp://en.wikipedia.org/wiki/Collateralized_debt_obligation%20%5C%20Collateralized%20debt%20obligationhttp://en.wikipedia.org/wiki/Herd%20%5C%20Herdhttp://en.wikipedia.org/wiki/Corporate_debt%20%5C%20Corporate%20debthttp://en.wikipedia.org/wiki/Credit_quality%20%5C%20Credit%20qualityhttp://en.wikipedia.org/wiki/Stationary%20%5C%20Stationaryhttp://en.wikipedia.org/wiki/Mortgage-backed_securities%20%5C%20Mortgage-backed%20securities
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3A care!ull% structure& "rocess ,ere'% loans an& oter recei$a'les are "ac+a#e& )un&er,ritten an& sol& in te !or( o! asset 'ac+e& securities.4
,-+ " SECURITISATION/
Secruritisation o! &e't or asset re!ers to te "rocess o! li0ui&atin# te illi0ui& an&lon# ter( assets li+e loans an& recei$a'les o! !inancial institutations li+e 'an+s '%issuin# (ar+eta'le securities a#ainst te(. In oter ,or&s) it is a tecni0ue '%,ic a lon# ter()non* ne#otia'le an& i# $alue !inancial asset li+e ire "urcaseis con$erte& into securitieso! s(all $alues ,ic can 'e tra&a'le in te (ar+et 5ustli+e sares.
Tus) it is notin# 'ut a "rocess o! re(o$in# lon# ter( assets !ro( te 'alanceseet o! a len&in# !inancial institution an& re"lacin# te( ,it li0ui& cas trou#te issue o! securities a#ainst te(. Un&er securitisation) a !inancial institution
"ools its illi0ui& ) non*ne#otia'le an& lon# ter( assets) creates securities a#ainstte() #ets te( rate& an& sells te( to in$estors. It is an on#oin# "rocessin tesense tat assets are con$erte& into securites ) cas into assets an& assets intosecurities an& so on.
Generll%) e/tension o! cre&it '% 'an+s an& oter !inancial institutions in te !or(o! 'ills "urcase& an& &iscountin# o! ire "urcase !inancian# a""ears as an asseton teir 'alance seets. So(e o! tese assets are lon# ter( in nature an& it i("liestat !un&s are loc+e& u" unnecessaril% !or an un&ue lon# "erio&. So to carr% onteir len&in# o"erations ,itout (uc interru"tions) te% a$e to rel% u"on $ariousoter sources o! !inance ,ic are not onl% costl% 'ut also not a$ailoa'le easil%.A#ain) te% a$e to 'ear te ris+ o! te cre&it outstan&in#s. No,) securitisation is area&%(a&e solution !or te(. Securitisation el"s te( to rec%cle !un&s at areasona'le cost an& ,it less cre&it ris+. In oter ,or&s) securitisation el"s tore(o$e tese assets !ro( te 'alance seet o! !inancial institutions '% "ro$i&in#li0ui&it% trou# tra&a'le !inancial instru(ents
S+r01+0r!
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Poo2*3 *4 +r*"!r
Te ori#inator initiall% o,ns te assets en#a#e& in te &eal. Tis is t%"icall% aco("an% loo+in# to eiter raise ca"ital) restructure &e't or oter,ise a&5ust its!inances. Un&er tra&itional cor"orate !inance conce"ts) suc a co("an% ,oul&a$e tree o"tions to raise ne, ca"ital: a loan) 'on& issue) or issuance o! stoc+ .6o,e$er) stoc+ o!!erin#s &ilute te o,nersi" an& control o! te co("an%) ,ileloan or 'on& !inancin# is o!ten "roi'iti$el% e/"ensi$e &ue to te cre&it ratin# o! te co("an% an& te associate& rise in interest rates.
Te consistentl% re$enue*#eneratin# "art o! te co("an% (a% a$e a (uc i#er cre&it ratin# tan te co("an% as a ,ole. For instance) a leasin# co("an% (a%a$e "ro$i&e& 89( no(inal $alue o! leases) an& it ,ill recei$e a cas !lo, o$er te ne/t !i$e %ears !ro( tese. It cannot &e(an& earl% re"a%(ent on te leases an&
so cannot #et its (one% 'ac+ earl% i! re0uire&. I! it coul& sell te ri#ts to te cas!lo,s !ro( te leases to so(eone else) it coul& trans!or( tat inco(e strea( into alu(" su( to&a% in e!!ect) recei$in# to&a% te "resent $alue o! a !uture cas !lo,;.ere te ori#inator is a 'an+ or oter or#anization tat (ust (eet ca"itala&e0uac% re0uire(ents) te structure is usuall% (ore co("le/ 'ecause a se"arateco("an% is set u" to 'u% te assets.
A suita'l% lar#e "ort!olio o! assets is s len#t !ro( te issuer) in,ic case te issuer is classi!ie& as a
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Securitization is $er% (uc closer to e0uit% researc. In a ,a%) securit% anal%sis!ocuses on !un&a(ents o! a 'usiness. ?i+e,ise) securitization el"s a te in$estor to a&5ue te stren#t o! a co("an%.
S!r51*3
A ser$icer collects "a%(ents an& (onitors te assets tat are te cru/ o! testructure& !inancial &eal. Te ser$icer can o!ten 'e te ori#inator) 'ecause teser$icer nee&s $er% si(ilar e/"ertise to te ori#inator an& ,oul& ,ant to ensuretat loan re"a%(ents are "ai& to te S"ecial Pur"ose =eicle.
Te ser$icer can si#ni!icantl% a!!ect te cas !lo,s to te in$estors 'ecause itcontrols te collection "olic%) ,ic in!luences te "rocee&s collecte&) te car#e*o!!s an& te reco$eries on te loans. An% inco(e re(ainin# a!ter "a%(ents an&
e/"enses is usuall% accu(ulate& to so(e e/tent in a reser$e or s"rea& account) an&an% !urter e/cess is returne& to te seller. 2on& ratin# a#encies "u'lis ratin#s o! asset*'ac+e& securities 'ase& on te "er!or(ance o! te collateral "ool) te cre&itenance(ents an& te "ro'a'ilit% o! &e!ault.
en te issuer is structure& as a trust) te trustee is a $ital "art o! te &eal as te#ate*+ee"er o! te assets tat are 'ein# el& in te issuer. E$en tou# te trustee is
"art o! te SP=) ,ic is t%"icall% ,oll% o,ne& '% te Ori#inator) te trustee asa !i&uciar% &ut% to "rotect te assets an& tose ,o o,n te assets) t%"icall% tein$estors.
R!68!*+ "+r01+0r!"
Unli+e cor"orate 'on&s) (ost securitizations are a(ortize&) (eanin# tat te "rinci"al a(ount 'orro,e& is "ai& 'ac+ #ra&uall% o$er te s"eci!ie& ter( o! teloan) rater tan in one lu(" su( at te (aturit% o! te loan. Full% a(ortizin#securitizations are #enerall% collateralise& '% !ull% a(ortizin# assets suc as o(ee0uit% loans) auto loans) an& stu&ent loans. Pre"a%(ent uncertaint% is an i("ortantconcern ,it !ull% a(ortizin# A2S. Te "ossi'le rate o! "re"a%(ent $aries ,i&el%,it te t%"e o! un&erl%in# asset "ool) so (an% "re"a%(ent (o&els a$e 'een&e$elo"e& in an atte("t to &e!ine co((on "re"a%(ent acti$it%. A controlle&a(ortization structure is a (eto& o! "ro$i&in# in$estors ,it a (ore "re&icta'lere"a%(ent sce&ule) e$en tou# te un&erl%in# assets (a% 'e nona(ortissin#.
A!ter a "re&eter(ine& 3re$ol$in#4 "erio&) &urin# ,ic onl% interest "a%(ents are
http://en.wikipedia.org/wiki/Fiduciary%20%5C%20Fiduciaryhttp://en.wikipedia.org/wiki/Amortization%20%5C%20Amortizationhttp://en.wikipedia.org/wiki/Home_equity_loan%20%5C%20Home%20equity%20loanhttp://en.wikipedia.org/wiki/Home_equity_loan%20%5C%20Home%20equity%20loanhttp://en.wikipedia.org/wiki/Student_loan%20%5C%20Student%20loanhttp://en.wikipedia.org/wiki/Fiduciary%20%5C%20Fiduciaryhttp://en.wikipedia.org/wiki/Amortization%20%5C%20Amortizationhttp://en.wikipedia.org/wiki/Home_equity_loan%20%5C%20Home%20equity%20loanhttp://en.wikipedia.org/wiki/Home_equity_loan%20%5C%20Home%20equity%20loanhttp://en.wikipedia.org/wiki/Student_loan%20%5C%20Student%20loan
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(a&e) tese securitizations atte("t to return "rinci"al to in$estors in a series o! &e!ine& "erio&ic "a%(ents) usuall% ,itin a %ear. An earl% a(ortization e$ent iste ris+ o! te &e't 'ein# retire& earl%.
On te oter an&) 'ullet or slu# structures return te "rinci"al to in$estors in asin#le "a%(ent. Te (ost co((on 'ullet structure is calle& te so!t 'ullet)(eanin# tat te !inal 'ullet "a%(ent is not #uarantee& on te e/"ecte& (aturit%&ate1 o,e$er) te (a5orit% o! tese securitizations are "ai& on ti(e. Te secon&t%"e o! 'ullet structure is te ar& 'ullet) ,ic #uarantees tat te "rinci"al ,ill
'e "ai& on te e/"ecte& (aturit% &ate. 6ar& 'ullet structures are less co((on !or t,o reasons: in$estors are co(!orta'le ,it so!t 'ullet structures) an& te% arereluctant to acce"t te lo,er %iel&s o! ar& 'ullet securities in e/can#e !or a
#uarantee.
Securitizations are o!ten structure& as a se0uential "a% 'on&) "ai& o!! in ase0uential (anner 'ase& on (aturit%. Tis (eans tat te !irst trance) ,ic (a%a$e a one*%ear a$era#e li!e) ,ill recei$e all "rinci"al "a%(ents until it is retire&1ten te secon& trance 'e#ins to recei$e "rinci"al) an& so !ort. @8B Pro rata 'on&structures "a% eac trance a "ro"ortionate sare o! "rinci"al trou#out te li!e o! te securit%.
http://en.wikipedia.org/w/index.php?title=Sequential_pay_bond&action=edit&redlink=1%20%5C%20Sequential%20pay%20bond%20(page%20does%20not%20exist)http://en.wikipedia.org/wiki/Securitization%20%5C%20cite_note-Dwight-11http://en.wikipedia.org/w/index.php?title=Pro_rata_bond&action=edit&redlink=1%20%5C%20Pro%20rata%20bond%20(page%20does%20not%20exist)http://en.wikipedia.org/w/index.php?title=Sequential_pay_bond&action=edit&redlink=1%20%5C%20Sequential%20pay%20bond%20(page%20does%20not%20exist)http://en.wikipedia.org/wiki/Securitization%20%5C%20cite_note-Dwight-11http://en.wikipedia.org/w/index.php?title=Pro_rata_bond&action=edit&redlink=1%20%5C%20Pro%20rata%20bond%20(page%20does%20not%20exist)
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S6!12 +6!" o "!10r+9+o*
M"+!r +r0"+
A (aster trust is a t%"e o! SP= "articularl% suite& to an&le re$ol$in# cre&it car& 'alances) an& as te !le/i'ilit% to an&le &i!!erent securities at &i!!erent ti(es. In at%"ical (aster trust transaction) an ori#inator o! cre&it car& recei$a'les trans!ers a
"ool o! tose recei$a'les to te trust an& ten te trust issues securities 'ac+e& '%tese recei$a'les. O!ten tere ,ill 'e (an% trance& securities issue& '% te trustall 'ase& on one set o! recei$a'les. A!ter tis transaction) t%"icall% te ori#inator ,oul& continue to ser$ice te recei$a'les) in tis case te cre&it car&s.Tere are $arious ris+s in$ol$e& ,it (aster trusts s"eci!icall%. One ris+ is tatti(in# o! cas !lo,s "ro(ise& to in$estors (i#t 'e &i!!erent !ro( ti(in# o!
"a%(ents on te recei$a'les. For e/a("le) cre&it car&*'ac+e& securities can a$e(aturities o! u" to 89 %ears) 'ut cre&it car&*'ac+e& recei$a'les usuall% "a% o!! (uc (ore 0uic+l%. To sol$e tis issue tese securities t%"icall% a$e a re$ol$in#
"erio&) an accu(ulation "erio&) an& an a(ortization "erio&. All tree o! tese "erio&s are 'ase& on istorical e/"erience o! te recei$a'les. Durin# te re$ol$in# "erio&) "rinci"al "a%(ents recei$e& on te cre&it car& 'alances are use& to "urcase a&&itional recei$a'les. Durin# te accu(ulation "erio&) tese "a%(entsare accu(ulate& in a se"arate account. Durin# te a(ortization "erio&) ne,
"a%(ents are "asse& trou# to te in$estors.
A secon& ris+ is tat te total in$estor interests an& te seller>s interest are li(ite&to recei$a'les #enerate& '% te cre&it car&s) 'ut te seller ori#inator; o,ns teaccounts. Tis can cause issues ,it o, te seller controls te ter(s an&con&itions o! te accounts. T%"icall% to sol$e tis) tere is lan#ua#e ,ritten intote securitization to "rotect te in$estors an& "otential $e#eta'les.A tir& ris+ is tat "a%(ents on te recei$a'les can srin+ te "ool 'alance an&un&er*collateralize total in$estor interest. To "re$ent tis) o!ten tere is a re0uire&(ini(u( seller>s interest) an& i! tere ,as a &ecrease ten an earl% a(ortizatione$ent ,oul& occur.
I""0*1! +r0"+
http://en.wikipedia.org/wiki/Credit_card%20%5C%20Credit%20cardhttp://en.wikipedia.org/wiki/Credit_card%20%5C%20Credit%20card
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In 999) -iti'an+ intro&uce& a ne, structure !or cre&it car&*'ac+e& securities)calle& an issuance trust) ,ic &oes not a$e li(itations) tat (aster trustsso(eti(es &o) tat re0uires eac issue& series o! securities to a$e 'ot a senioran& su'or&inate trance. Tere are oter 'ene!its to an issuance trust: te% "ro$i&e(ore !le/i'ilit% in issuin# seniorCsu'or&inate securities) can increase &e(an&
'ecause "ension !un&s are eli#i'le to in$est in in$est(ent*#ra&e securities issue& '% te() an& te% can si#ni!icantl% re&uce te cost o! issuin# securities. 2ecause o! tese issues) issuance trusts are no, te &o(inant structure use& '% (a5or issuerso! cre&it car&*'ac+e& securities.
Gr*+or +r0"+
Grantor trusts are t%"icall% use& in auto(o'ile*'ac+e& securities an& REI-sReal Estate ort#a#e In$est(ent -on&uits;. Grantor trusts are $er% si(ilar to
"ass*trou# trusts use& in te earlier &a%s o! securitization. An ori#inator "oolsto#eter loans an& sells te( to a #rantor trust) ,ic issues classes o! securities
'ac+e& '% tese loans. Princi"al an& interest recei$e& on te loans) a!ter e/"ensesare ta+en into account) are "asse& trou# to te ol&ers o! te securities on a "ro*rata 'asis.
O*!r +r0"+
In an o,ner trust) tere is (ore !le/i'ilit% in allocatin# "rinci"al an& interestrecei$e& to &i!!erent classes o! issue& securities. In an o,ner trust) 'ot interest
an& "rinci"al &ue to su'or&inate securities can 'e use& to "a% senior securities.Due to tis) o,ner trusts can tailor (aturit%) ris+ an& return "ro!iles o! issue&securities to in$estor nee&s. Usuall%) an% inco(e re(ainin# a!ter e/"enses is +e"tin a reser$e account u" to a s"eci!ie& le$el an& ten a!ter tat) all inco(e isreturne& to te seller. O,ner trusts allo, cre&it ris+ to 'e (iti#ate& '% o$er*collateralization '% usin# e/cess reser$es an& e/cess !inance inco(e to "re"a%securities 'e!ore "rinci"al) ,ic lea$es (ore collateral !or te oter classes.
S+r01+0r!4 S!10r+!" ;" Co*5!*+o*2 S!10r+!"
http://en.wikipedia.org/wiki/Citibank%20%5C%20Citibankhttp://en.wikipedia.org/wiki/Excess_reserves%20%5C%20Excess%20reserveshttp://en.wikipedia.org/wiki/Citibank%20%5C%20Citibankhttp://en.wikipedia.org/wiki/Excess_reserves%20%5C%20Excess%20reserves
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Securitisation is 'asicall% a structure& !inancial transaction. It en$isa#es te issue
o! securities a#ainst ill*li0ui& assets an& suc securities are reall% structure&
securities. It is so 'ecause) te% are 'ac+e& '% te $alue o! te un&erl%in# !inancialasset an& te cre&it su""ort o! a tir& "art% also) at tis sta#e) one soul& not
con!use suc structure& securities ,it con$entional securities li+e 'on&s)
&e'entures) etc. Te% &i!!er !ro( eac oter in te !ollo,in# res"ects.
8;So0r1! o r!68!*+: In te case o! con$entional securities) te "ri(ar%
source o! re"a%(ent is te earnin# "o,er an& cas !lo, o! te issuin#
co("an%. 2ut) un&er securitization) te issuin# co("an% is co("letel% !ree
!ro( tis 'oteration since te 'ur&en o! re"a%(ent is si!te& to a "ool o!
assets or to a tir& "art%.;S+r01+0r!: Un&er securitization) te securities (a% 'e structure& in suc a
,a% so as to acie$e a &esire& le$el o! ris+ an& a &esire& le$el o! ratin#
&e"en&in# u"on te t%"e an& a(ount o! assets "oole&. Suc a coice is not
a$aila'le in te case o! con$entional securities.;N+0r!: In !act) tese structure& securities are 'asicall% &eri$ati$es o! te
tra&itional &e't instru(ents. O!course) te cre&it stan&in# o! tese securities
is ,ell su""orte& '% a "ool o! assets or '% a #uarantee or '% 'ot.
S!10r+"+o* ;" F1+or*3
At tis sta#e) one soul& not con!use te ter( securitisation ,it tat o!
!actorin#. Since 'ot &eal ,it te assets $iz.) 'oo+ &e'ts an& recei$a'les) it is
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$er% essential tat te &i!!erences 'et,een te( (ust 'e clearl% un&erstoo&. Te
(ain &i!!erences are:
i; Factorin# is (ainl% associate& ,it te assets 'oo+ &e'ts an&
recei$a'les; o! (anu!acturin# an& tra&in# co("anies ,ereassecuritisation is (ainl% associate& ,it te assets o! !inancial co("anies.ii; Factorin# (ainl% &eals ,it tra&e &e'ts an& tra&e recei$a'les o! clients.
On te oter an&) securitisation &eals ,it loans an& recei$a'les arisin#
out o! loans li+e 6ire "urcase !inance recei$a'les) recei$a'les !ro(
Go$ern(ent &e"art(ents etc.iii; In te case o! !actorin#) te tra&e &e'ts an& recei$a'les in 0uestions are
sort*ter( in nature ,ereas te% are (e&iu( ter( or lon#*ter( in
nature in te case o! securitisation.
i$; Te 0uestion o! issuin# securities a#ainst 'oo+ &e'ts &oes not arise at allin te case o! !actorin# ,ereas it !or(s te $er% 'asis o! securitisation.
$; Te !actor i(sel! ta+es u" te collection ,or+ ,ereas it can 'e &one
eiter '% te ori#inator or '% a se"arate ser$icin# a#enc% un&er
securitisation.$i; Un&er !actorin#) te entire cre&it ris+ is "asse& on to te !actor. 2ut un&er
securitisation) a "art o! te cre&it ris+ can 'e a'sor'e& '% te ori#inator
'% trans!errin# te assets at a &iscount.
METHOD OF OPERATION
For te o"erational (ecanics o! securitizations) te !ollo,in# "arties are re0uire&:
8. Te ori#inator.
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. A S"ecial Pur"ose =eicleSP=;. A (ercant or in$est(ent 'an+er.H. A cre&it ratin# a#enc%.. A ser$icin# a#ent Recei$in# an& Pa%in# a#ent RPA;.. Te ori#inal 'orro,ers or o'li#ors.7. Te "ros"ecti$e in$estors. i.e.) te 'u%ers o! securities.L. Te $arious sta#es in$ol$e& in te ,or+in# o! securitisation are as !ollo,s:
i; I&enti!ication sta#eC"rocessii; Trans!er sta#eC"rocessiii;Issue sta#eC"rocessi$; Re&e("tion sta#eC"rocess
$; -re&it ratin# sta#eC"rocess
I4!*+1+o* Pro1!""
Te len&in# !inancial institution eiter a 'an+ or an% oter institution !or tat
(atter ,ic &eci&e& to #o in !or securitization o! its o,n assets is calle& te
ori#inator. Te ori#inator (i#t a$e #ot assets co("risin# o! a $ariet% o!
recei$a'les li+e co((ercial (ort#a#es) lease recei$a'les) ire "urcase
recei$a'les etc. Te ori#inator as to "ic+ u" a "ool o! assets o! o(o#eneous
nature) consi&erin# te (aturities) interest rates in$ol$e&) !re0uenc% o!
re"a%(ents an& (ar+eta'ilit%. Tis "rocess o! selectin# a "ool o! loans an&recei$a'les !ro( te eastern "ort!olios !or securitization is calle& i&enti!ication
"rocesses.
Tr*"!r Pro1!""
A!ter te i&enti!ication "rocess is o$er) te selecte& "ool o! assets are te
"asse& trou# to anoter institution ,ic is rea&% to el" te ori#inator to
con$ert tose "ools o! assets into securities. Tis institution is calle& te s"ecial
"ur"ose $eicleSP=; or te trust. Te "ass trou# transaction 'et,een te
ori#inator an& te SP= is eiter '% ,a% o! outri#t sale i.e.) !ull trans!er o!
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assets in 0uestion !or $alua'le consi&eration or '% "assin# te( !or a
collateralise& loan. Generall%) it is &one on an outri#t sale 'asis. Tis "rocess
o! "assin# trou# te selecte& "ool o! assets '% te ori#inator to a SP= is
calle& trans!er "rocess an& once tis trans!er "rocess is o$er) te assets are
re(o$e& !ro( te 'alance seet o! te ori#inator.
I""0! Pro1!""
A!ter tis trans!er "rocess is o$er) te SP= ta+es u" te onerous tas+ o!
con$ertin# tese assets o! $arious t%"es o! &i!!erent (aturities. It is on tis
'asis) te SP= issues securities to in$estors. Te SP= #ets itsel! rei('urse& out
o! te sale "rocee&s. Te securities issue& '% te SP= is calle& '% &i!!erent
na(es li+e Pa% trou# -erti!icates) Pass trou# -erti!icates. Te
securities are structure& in suc a ,a% tat te (aturit% o! tese securities (a%
s%ncronies ,it te (aturities o! te securitize& loans or recei$a'les.
R!4!86+o* Pro1!""
Te re&e("tion an& "a%(ents o! interest on tese securities are !acilitate& '%
te collections recei$e& '% te SP= !ro( te securitise& assets. Te tas+ o!
collection o! &ues is #enerall% entruste& to te ori#inator or a s"ecial ser$icin#
a#ent can ' a""ointe& !or tis "ur"ose. Tis a#enc% is "ai& certain "ercenta#e
o! co((ission !or te collection ser$ices ren&ere&. Usuall%) te ori#inator is
a""ointe& as te ser$isor. Tus) un&er securitization) te role o! te ori#inator
#ets re&uce& to tat o! a collection a#ent on 'eal! o! te SP=) in case e is
a""ointe& as a collection a#ent. A "ass trou# certi!icate (a% 'e eiter ,it
recourse to" te ori#inator or ,itout recourse. Te usual "ractice is to (a+e
it ,itout recourse. 6ence) te ol&er o! a "ass trou# certi!icate as to loo+
to te SP= !or "a%(ent o! te "rinci"al an& interest on te certi!icates el& to
i(. Tus) te (ain tas+ o! te SP= is to structure te &eal) raise "rocee&s '%
issuin# "ass trou# certi!icates an& arran#e !or "a%(ent o! interest an&
"rinci"al to te in$estors.
Cr!4+ R+*3 Pro1!""
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Since te "ass trou# certi!icates a$e to 'e "u'licl% issue&) te% re0uire cre&it
ratin# '% a #oo& cre&it ratin# a#enc% so tat te% 'eco(e (ore attracti$e an&
easil% acce"ta'le. 6ence) tese certi!icates are rate& at least '% one cre&it ratin#
a#enc% on te e$e o! te securitisation. Te issues coul& also 'e #uarantee& '%
e/ternal #uarantor institutions li+e (ercant 'an+ers ,ic ,oul& enance tecre&it ,ortiness o! te certi!icates an& ,oul& 'e rea&il% acce"ta'le to
in$estors. O! course) tis ratin# #uarantee "ro$i&es a sense o! con!i&ence to te
in$estor ,it re#ar& to te ti(el% "a%(ent o! "rinci"al an& interest '% te SP=.
Pass trou# certi!icates) li+e &e'entures) &irectl% re!lect te o,nersi" ri#ts
in te assets securitize&) teir re"a%(ent sce&ule) interest rate etc. Tese
certi!icates) 'e!ore (aturit%) are tra&a'le in te secon&ar% (ar+et to ensure
li0ui&it% !or te in$estors. Te% are ne#otia'le securities an& ence te% can 'e
easil% tra&a'le in te (ar+et.
Ro2! O T-! M!r1-*+ B*
Te oter "arties in te #a(e o! securitization are te ori#inal 'orro,ers an&te "ros"ecti$e in$estors. Te ori#inal 'orro,ers re!er to tose ,o a$e
a$aile& o! ten loan !acilities !ro( te len&in# institution) i.e.) te ori#inator.
Te% are also calle& o'li#ors. In !act te success o! te securitization "rocess
&e"en&s u"on tese ori#inal 'orro,ers. I! te% !ail to (eet teir co((it(ents
on te &ue &ates) te securitization "rocess ,ill 'e at &an#er. In!act te recei"ts
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o! cas !lo,s !ro( te ori#inal 'orro,ers are "asse& trou# to te in$estors.
Te "ros"ecti$e in$estors are notin# 'ut te "u'lic at lar#e ,o are ,illin# to
"urcase te "ass trou# certi!icates.
STRUCTURE FOR SECURITISATION=TYPES OF SECURITIES
Securitization is a structure& transaction) ,ere'% te ori#inator trans!ers or sellsso(e o! its assets to a SP= ,ic 'rea+s tese assets into tra&a'le securities o! s(aller $alues ,ic coul& 'e sol& to te in$estin# "u'lic. Te a""ro"riatestructure !or securitization &e"en&s on a $ariet% o! !actors li+e 0ualit% o! assetssecuritize&) &e!ault e/"erience o! ori#inal 'orro,ers) a(ount o! a(ortization at(aturit%) !inancial re"utation an& soun&ness o! te ori#inator etc. Te #eneral
"rinci"le is tat te securities (ust 'e structure& in suc a ,a% tat te (aturit% o! tese securities (a% coinci&e ,it te (aturit% o! te securitize& loans. 6o,e$er)tere are tree i("ortant t%"es o! securities as liste& 'elo,:
8. Pass trou# an& "a% trou# certi!icates). Pre!erre& stoc+ certi!icates) an&. Asset 'ase& co((ercial "a"ers.
P"" +-ro03- *4 6 +-ro03- C!r+1+!"
In te case o! "ass trou# certi!icates) "a%(ents to in$estors &e"en& u"on tecas !lo, !ro( te assets 'ac+in# suc certi!icates. In oter ,or&s) as an&,en cas is recei$e& !ro( te ori#inal 'orro,er '% te SP=) it is "asse& on tote ol&ers o! certi!icates at re#ular inter$als an& te entire "rinci"al is returne&,it te retire(ent o! te assets "ac+e& in te "ool. Tus) "ass trou#certi!icates a$e a sin#le (aturit% structure an& te tenure o! tese certi!icatesis (atce& ,it te li!e o! te securitize& assets.
On te oter an&) "a% trou# certi!icates a$e a (ulti"le (aturit% structure&e"en&in# u"on te (aturit% "attern o! un&erl%in# assets. Tus) t,o or treet%"es o! securities ,it &i!!erent (aturit% "atters li+e sort ter() (e&iu( ter(an& lon# ter( (a% 'e issue&. Te #reatest a&$anta#e is tat te% can 'e issue&&e"en&in# u"on te in$estors &e(an& !or $ar%in# (aturit% "atterns. Tis t%"eis (ore attracti$e !ro( te in$estors "oint o! $ie, 'ecause te %iel& is o!tenin'uilt in te "rice o! securities te(sel$es) i.e. ) te% are o!!ere& at a &iscountto !ace $alue as in te case o! &ee"*&iscount 'on&s.
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Pr!!rr!4 S+o1< C!r+1+!"
Pre!erre& stoc+s are instru(ents issue& '% a su'si&iar% co("an% a#ainst te
tra&e &e'ts an& consu(er recei$a'les o! its "arent co("an%. In oter ,or&s)su'si&iar% co("anies 'u% te tra&e &e'ts an& recei$a'les o! "arent co("anies)con$ert te( into sort ter( securities) an& el" te "arent co("anies tooen5o% li0ui&it%. Tus tra&e &e'ts can also 'e securitize& trou# te issue o!
"re!erre& stoc+s. Generall%) tese stoc+s are 'ac+e& '% #uarantees #i$en '%i#l% rate& (ercant 'an+s an& ence te% are also attracti$e !ro( tein$estors "oint o! $ie,. Tese instru(ents are (ostl% sort*ter( in nature.
A""!+'>"!4 Co88!r12 P6!r"
Tis t%"e o! structure is (ostl% "re$alent in (ort#a#e 'ac+e& securities. Un&er tis t%"e) te SP= "urcases "ort!olio o! (ort#a#es !ro( &i!!erent sources an&te% are co('ine& into a sin#le #rou" on te 'asis o! interest rates) (aturit%&ates an& un&erl%in# collaterals. Te% are) ten) trans!erre& to a trust ,ic) inturn) issues (ort#a#e 'ac+e& certi!icates to te in$estors. Tese certi!icates areissue& a#ainst te co('ine& "rinci"al $alue o! te (ort#a#es an& te% are alsosort ter( instru(ents. Eac certi!icate ol&er is entitle& to "artici"ate in tecas !lo, !ro( un&erl%in# (ort#a#es to te e/tent o! is in$est(ents in tecerti!icates.
O+-!r T6!"
A"art !ro( te a'o$e) tere are also oter t%"es o! certi!icates na(el%:8. Interest onl% certi!icates an&. Princi"al onl% certi!icates.
In te case o! interest onl% certi!icates) "a%(ents are (a&e to in$estors onl%!ro( te interest inco(es earne& !ro( te assets securitize&. As te $er%na(e su##ests) "a%(ents are (a&e to in$estors onl% !or te re"a%(ent o!
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"rinci"al '% te ori#inal 'orro,ers) in case o! "rinci"al onl% certi!icates.
Tese certi!icates ena'le s"eculati$e &ealin#s since te s"eculators +no,n,ell tat te interest rate (o$e(ents ,oul& a!!ect te 'on& $aluesi((e&iatel%. For instance) te "rinci"al onl% certi!icates ,oul& increase in$alue ,en interest rate #o &o,n. It is so 'ecause) it 'eco(es a&$anta#eousto re"a% te e/istin# &e'ts an& resort to !res 'orro,in#s at lo,er cost. Tisearl% re&e("tion o! securities ,oul& 'ene!it te in$estors to a #reater e/tent.
Si(ilarl%) ,en te interest rates #o u") interest onl% certi!icate ol&ersstan& to #ain since (ore interest ,oul& 'e a$aila'le !ro( te un&erl%in#assets. One cannot e/actl% "re&ict te !uture (o$e(ents o! interest) an&ence) tese certi!icates #i$e (uc sco"e !or s"eculators to "la% teir #a(e.
Tus) securitization o!!ers (uc sco"e !or te intro&uction o! ne,er an&ne,er instru(ents so as to (eet te $ar%in# re0uire(ents o! in$estors. De'tsecuritization o!!ers a $ariet% o! in$est(ent instru(ents to te in$estin#
"u'lic at lar#e as ,ell as to !inancial inter(e&iaries li+e (utual !un&s)insurance co("anies etc.
SECURITISABLE ASSETS
As state& earlier) all assets are not suita'le !or securitization. For instance)
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tra&e &e'ts an& recei$a'les are not #enerall% suita'le !or securitization,ereas te% are rea&il% acce"ta'le to a !actor. Onl% in rare cases) te% aresecuritize&. E/a("le: Pre!erre& Stoc+ -erti!icates.
Te !ollo,in# assets are #enerall% securitize& '% !inancial institutions:
i; Ter( loans to !inanciall% re"ute& co("anies
ii; Recei$a'les !ro( Go$ern(ent De"art(ent an& -o("anies
iii;-re&it car& recei$a'le
i$; 6ire "urcase loans li+e $eicle loans
$; ?ease !inance
$i; ort#a#e ?oans etc.
BENEFITS OF SECURITISATION
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De't securitisation "ro$i&es (an% 'ene!its to all te "arties) suc as) te
ori#inator. In$estors an& te re#ulator% autorities. So(e o! te i("ortant 'ene!its
are te !ollo,in#:
%. A44+o*2 So0r1! o F0*4
Te ori#inator i.e.te len&in# institution; is (uc 'ene!itte& 'ecause
securitisation "ro$i&es an a&&itional source o! !un&s '% con$ertin# an
oter,ise illi0ui& asset into an rea&% li0ui&it%. As a result) tere is an
i((e&iate i("ro$e(ent in te cas !lo, o! te ori#inator.
#. Gr!+!r Pro+>2+
Securitisation el"s !inancial institutions to #et li0ui& cas !ro( (e&iu(ter( an& lon# ter( assets i((e&iatel% rater tan o$er a lon#er "erio&. It
lea&s to i#er rec%clin# o! !un&s ,ic) in turn) lea&s to i#er 'usiness
turno$er an& "ro!ita'ilit%. A#ain. te cas !lo, coul& 'e rec%cle& !or
in$est(ent in i#er %iel&in# assets. Tis (eans #reater "ro!ita'ilit%.It results in a&&itional 'usiness turno$er.
?. E*-*1!8!*+ o C6+2 A4!@01 R+o
Securitisation ena'les !inancial institutions to enance teir ca"ital a&e0uac% ratio
'% re&ucin# teir assets $olu(e. Te "rocess o! securitisation necessitates te
selection o! a "ool o! assets '% te !inancial institutions to 'e sol& or trans!erre&)
te% are re(o$e& !ro( te 'alance seet o! te ori#inator. It results in te re&uctiono! assets $olu(e) tere'% increasin# te ca"ital a&e0uac% ratio.
. S6r!4*3 o Cr!4+ R"
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Securitisation !acilities te s"rea&in# o! cre&it ris+ to &i!!erent "arties
in$ol$e& in te "rocess o! securitisation. In te a'sence o! securitisation) te
entire cre&it ris+ associate& ,it a "articular !inancial transaction as to 'e
'orne '% te ori#inator i(sel!. No,) te ori#inator is a'le to &i$ersi!% te
ris+ !actors a(on# te $arious "arties in$ol$e& in securitisation. Tus) it isuse& as tool !or ris+ (ana#e(ent.
. Lo!r Co"+ o 0*4*3
In $ie, o! enance(ent o! cas !lo,s an& &i$ersi!ications o! ris+ !actors)
securitisation ena'les te ori#inator to a$e an eas% access to te securities
(ar+et at &e't ratin#s i#er tan its o$erall cor"orate ratin#. It (eans tat
co("anies ,it lo, cre&it ratin# can issue asset 'ac+e& securities at lo,er
interest cost &ue to i# cre&it ratin# on suc securities. Tis el"s it to
secure !un&s at lo,er cost.
. Pro5"o* o M02+62! I*"+r08!*+"
Fro( te in$estors "oint o! $ie,) securitisation "ro$i&es (ulti"le ne,
in$est(ent instru(ents so as to (eet te $ar%in# re0uire(ents o! te
in$estin# "u'lic.
7. H3-!r r+! o R!+0r*
en co("are& to tra&itional &e't securities li+e 'on&s an& &e'entures)
securitise& securities o!!er 'etter rate o! return alon# ,it 'etter li0ui&it%.
Tese instru(ents are rate& '% #oo& cre&it ratin# a#encies an& ence (ore
attracti$e.
. Pr!5!*+o* o I42! C6+2
In te a'sence o! securitisation) ca"ital ,oul& re(ain i&le in te !or( o! ill*
li0ui& assets li+e (ort#a#es) ter( loans etc.) in (an% o! te len&in#
institutions. No,) securitisation el"s rec%clin# o! !un&s '% con$ertin# tese
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assets into li0ui&it%) li0ui&it% into assets) an& so on '% (eans o! issuin#
tra&a'le an& trans!era'le securities a#ainst tese assets.
. B!++!r +-* Tr4+o*2 I*"+r08!*+"
-erti!icates are issue& to in$estors a#ainst te 'ac+in# o! assets securitise&.
Te un&erl%in# assets are use& not onl% as a collateral to te certi!icates 'ut
also to #enerate te inco(e to "a% te "rinci"al an& interest to te in$estors.
It is 'etter tan e$en (utual !un& units 'ecause it is issue& a#ainst te
'ac+in# !or (utual !un& certi!icates. Tus) tese instru(ents) 'ein#
structure& asset 'ac+e& securities) a!!or& a #reater "rotection to in$estors.
%$. O+-!r B!*!+"
Securitisation) i! carrie& out in true s"irit) lea&s to #reater econo(% in te
use o! ca"ital ,it e!!icienc% an& cost e!!ecti$eness in 'ot !un&in# an&
len&in#.In te lon# run) it is 'ene!icial to te 'orro,ers also. Te% ,ill 'e a'le to #et
!un&s at cea"er rates since te ori#inators are li+el% to "ass on te 'ene!it to
te ulti(ate 'orro,ers. Tere is no &ou't tat securitisation is a lo, cost an&
inno$ati$e !un&in# source ensurin# econo(% in te use o! ca"ital.
CONDITIONS FOR SUCCESSFUL
SECURITISATION
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I! securitization o! &e't as to 'e success!ul) te !ollo,in# con&itions (ust a$e
'een !ul!ille&.
8. Ulti(atel%) te success o! securitization &e"en&s u"on te a'ilit% o! te ori#inal
'orro,er to re"a% is loan. Tere!ore) selection o! assets to 'e securitize& re0uiresut(ost care. Te assets soul& 'e ran+e& an& selecte& on te 'asis o! least losses to
"ro$i&e !or (a/i(u( "rotection to in$estors.
. Te cre&it ratin# is an inte#ral "art o! securitization. 6ence) cre&it ratin# (ust 'e
&one '% cre&it a#encies on a scienti!ic 'asis an& te ratin#s soul& 'e
un0uestiona'le. Ten onl%) te "ros"ecti$e in$estors con!i&ence can 'e 'uilt. Te
cre&it ratin# a#encies soul& ta+e into account te $arious t%"es o! ris+ suc as
cre&it ris+) interest ris+) li0ui&it% ris+ etc. alon# ,it oter usual !actors.
. Te SP= soul& 'e a se"arate or#anization !ro( tat o! ori#inator. It soul& 'e
co("letel% insulate& !ro( te "arent cor"orate entit% so tat SP= coul& 'e
"rotecte& !ro( te &an#er o! 'an+ru"tc%.
H. Te "ass trou# certi!icates or an% oter si(ilar instru(ents arisin# out o!
securitization (ust 'e liste& in stoc+ e/can#es so tat te% (a% 'e rea&il%
acce"ta'le to in$estors. It ,oul& "ro$i&e instant li0ui&it% an& (oreo$er) its "rice
coul& also 'e easil% ascertaine&.
. Alternati$el%) it is also a&$isa'le to "ro$i&e t,o*,a% 0uotation !or !acilitatin#
te 'u%in# an& sellin# o! "ass trou# certi!icate in te (ar+et as in case o! (utual
!un& units.
. Tere (ust 'e stan&ar&ize& loan &ocu(entation !or si(ilar loans so tat tere
(a% 'e uni!or(it% 'et,een &i!!erent !inancial institutions. It (ust carr% a ri#t to
assi#n &e'ts to tir& "arties) so tat) it coul& 'e sol& or trans!erre& to te SP=.
7. Tere soul& 'e a "ro"er accountin# treat(ent !or te $arious transitions
in$ol$e& in asset securitization. Suita'le accountin# nor(s !or reco#nisation o! te
trust create& !or securitize& &e't soul& 'e e$ol$e&. Te accountin# s%ste( soul&
"ro$i&e !or te re(o$al o! te securitize& assets !ro( te 'alance seet o! te
ori#inator. Onl% ten) te real 'ene!it ,ill #o to te ori#inator.
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L. A'o$e all) tere soul& 'e "ro"er an& a&e0uate #ui&elines #i$en '% te
re#ulator% autorities &ealin# ,it te $arious as"ects o! te "rocess o!
securitization.
S!10r+9+o* * I*4
Te conce"t o! asset securitization is slo,l% enterin# into te In&ian soil.Financial institutions a$e not %et co(e !or,ar& to (a+e use o! tis a$enue !or !inancin# a lar#e scale. 6o,e$er) tere is a tar&% (o$e(ent o! te !inancialinstitutions in resortin# tis (o&e o! !inancin#. Te securitization o! te I-I-Isrecei$a'les '% te -iti'an+ in Fe'ruar% 8MM8 is te !irst atte("t in tis &irection. Asu( o! Rs.8 corers ,as raise& '% (eans o! securitization o! assets. Follo,in#
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tis) te 6ire "urcase "ort!olio o! TE?-O ,as securitize& '% te -iti'an+. A#ain)te Retail Resi&ential Recei$a'les D?F International ,ere also securitize& '% te-iti'an+ in June 8MM. Te -iti'an+s o,n "ort!olio o! 3-iti(o'ile Sce(e4 ,assu'5ect to securitization. In !act te -iti'an+ as "ioneere& tis tren& in In&ia.
No,) te 6DF- as ta+en u" tis route alon# ,it te -iti'an+. Te 6DF- is onte ,a% to securitize its ousin# loan "ort!olio aroun& Rs.9 corers. In!rastructure?easin# an& Financial ser$ices is also e/"ecte& to enter into tis !iel& '% settin# u"a SP=. I! securitization as to 'eco(e "o"ular in In&ia) te co((ercial 'an+ssoul& enter into tis !iel& in a 'i# ,a%. In !act) te co((ercial 'an+s can re(o$ete non*"er!or(in# assets !ro( teir 'alance seet '% resortin# to tis tecni0ue.At te sa(e ti(e) te% can rec%cle te !un&s !or #reater "ro!ita'ilit%. I! !inancialinstitutions a$e to (eet teir e$er*increasin# ca"ital re0uire(ents) securitization,oul& #oa lon# ,a% in (o'ilizin# a&e0uate resources.
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N! G04!2*!" o* S!10r+"+o*
Recentl% te R2I as issue& #ui&elines allo,in# co((ercial 'an+s to !inanceS"ecial Pur"ose =eicles SP=s; ,ic a$e 'een !or(e& to trans!er securitize&assets se"arate& !ro( te( so(e o! te i("ortant #ui&elines are:
8. All 'an+s) Ter( len&in# institutions an& N2F-s a$e to securitize onl%stan&ar& assets.
. 2an+s can !inance SP=s ,ic are en#a#e& in trans!errin# securitize&assets.
. ile !inancin# SP=s) an in&e"en&ent tir& "art%) oter ten teori#inators 'an+s; #rou" entities) soul& "ro$i&e atleast "er cent o! teli0ui&in# !acilit%. It (eans tat e$er% 'an+ soul& locate a tir& "art% !or !inancin# SP=s.
H. Te li0ui&it% !acilit% "ro$i&e& '% 'an+s soul& not 'e a$aila'le !or:a; eetin# recurrin# la"enses o! securitization)'; Fun&in# ac0uistio o! a&&itional assets '% SP=s)c; Fun&in# te !inancial sce&ule& re"a%(ent o! in$estors) an&
&; Fun&in# 'reac o! ,arranties.
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CONCLUSION
As (ost o! te inno$ations in te !inancial ser$ices in&ustr% &irectl% 'ene!it tecusto(er) tese inno$ations li+e !actorin# an& securitisation &irectl% 'rin# 'ene!itsto te !inancial institutions te(sel$es !irst an& ten to te "u'lic at lar#e. it is i#
ti(e tat te #o$ern(ent cane !or,ar& ,it all "ositi$e ealt to encoura#esecuritisation in In&ia .Te i((e&iate nee& o! te our is to a(en& $arious
rele$ant acts li+e te trans!er o! "ro"ert% act) 8LL)te re#istration act 8M9L)sta("la, act) 8M9L ect.to (a+e asset securitisation a s(oot a!!air. Pro"er accountin# "roce&ures soul& 'e e$ol$e& 'esi&es a""ro"riate #ui&elines '% te re#ulator%
autorities. Securitisation ,oul& !acilitate te trans!er o! ca"ital !ro( non*
"er!or(in# an& i&eal assets to (ore e!!icient assets. -reation o! ne, &e'tinstru(ents ,oul& !urter &ee"en te !inancial (ar+et. On te ,ole) te econo(%
,oul& 'e &e$elo"e& at a !aster rate tan ,at it is) i! securitisation 'eco(es a "o"ular tecni0ue o! !inancin#. Since te sta(" &uties a$e 'een consi&era'l%
re&uce& in states li+e aarastra an& te national stoc+ e/can#e as &eci&e& tolist securitise& assets) securitisation is e/"ecte& to a$e a $er% 'ri#t !uture in
In&ia an& te &e't (ar+et as e/"ecte& to 'eco(e $er% acti$e in te &a%s to co(e.
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BIBLIOGRAPHY
Fro( te 'oo+s:
Financial (ar+ets an& Ser$ice '% Gor&on an& Natra5an.
Securitisation o! Financial Assets '% P. K. ali+ .
www.wikipedia.org