Securitisation is the conversion of existing or

future cash flows into tradable securities

that can be sold to investors.
Securitisation is the process of pooling and
repackaging of homogenous illiquid financial
assets into marketable securities that can be
sold to investors

It is the process by which assets such as loan

receivables, hire purchase debtors, lease
receivables, trade debtors are transformed
into securities.
It fundamentally involves conversion of long
term assets into cash/illiquid assets.

Originator

The initial owner of the loans.

Sells them to the SPV

SPV
Special purpose
Vehicle

Set up specifically for transaction.

Purchases assets from Originator.
Company/Trust/ Mutual Fund

Obligors

The loan customers.

Pay cashflows that are securitised

Investors

Subscribe to securities
issued by SPV

Collection
Agent

Collects money from Obligors,

monitors and maintains assets.
Usually the originator

Credit Rating
Agency

Provides a rating for the deal

based on structure, rating of parties
& portfolio, legal and tax opinion et

Release of Locked-up funds

Cost of funds is reduced
Improved Ratios
Improved CAR
Matching of Assets and Liabilities

Any type of asset with a reasonably

predictable stream of future cash flows can
be securitized.
Assets that are easiest to securitize are
those: that occur in large pools; for which
past experience can be used to predict
default rates; for which documentation is
standardized; and for which ownership is
transferable.

MBS (Mortgage based securitization ) :

Securitisation based on immovable fixed
assets is Known as backed by mortgage.
ABS (Asset based securitization) :
Securitisation against the current and
moveable fixed assets is known as
Securitisation Backed by assets.

Off balance sheet financing

Regulatory capital relief
Improvement of RoCE
Multiple alternative sources of funding
Conversion of illiquid assets into liquid
securities
Systemically solves ALM problems

Enjoys low cost operations and servicing due

to economies of scale of the originator
Credit risk is minimized
Exposure

on rated, low-risk housing loans

Expertise of originators helps maintain quality of
underlying assets
Credit enhancement possible

Cleaner books due to expertise of originators

Systematically solves the ALM problems in the
sector
Encourages an efficient market
Results in substantial benefits to the end
customer of home loans

First deal in India between Citibank and GIC Mutual

Fund, in 1990 for Rs. 160 million.
Securitisation of cash flow of high value customers of
Rajasthan State Industrial and Development Corporation
in 1994-95, structured by SBI cap.
Securitisation of overdue payments of UP government
to HUDCO by issue of tax-free bonds worth Rs. 500
million
Securitisation of Sales Tax deferrals by Government Of
Maharashtra in August 2001 for Rs. 1500 million with a
green shoe option of Rs. 75 million.
First deal in power sector by Karnataka Electricity
Board for receivables worth Rs. 1940 million and placed
them with HUDCO.
Mega securitisation deal of Jet Airways for Rs. 16000
million through offshore SPVs.
Data indicate that ICICI had securitised assets to the
tune of Rs. 27500 million in its books at end March
1999.

Ashok Leyland finance

Cholamandalam investment & finance
Esanda finance
Sakthi finance
Tata finance
SRF finance

Originators
Churn higher returns on lower capital base
Investors
Can invest in low-risk rated home loans paper
without hassles of origination/ servicing
Financial system as a whole
Expertise of Specialists helps maintain quality
of underlying assets and reduces ALM
mismatches
Home Loan Customers
Access to cheaper funds

Narasimham committee I & II

Andhyarujina committee
Recommendations

made by them

Empower banks & FIs to take the possession of the

assets & to sell them wihout the intervention of the
court, was enacted.

The Securitisation and Reconstruction of

Financial Assets and Enforcement of Security
Interest Ordinance, 2002. on 21.06.2002.
It received the assent of the President on
17.12.2002 and has now become an Act.

This act empowers Banks and FIs (Secured

Creditors) and provides that the secured
creditors after 60 days notice :
Take

possession of the securities and dispose

them off
Take over the management of the assets
This act empowers the Bank and financial
institutions to directly enforce their right and
need not approach any court.

The process of enforcement of securities can

be done either :
By

the banks/financial institutions

Through the Asset Reconstruction Companies
created and registered under the act

Securitisation company must be registered

Existing companies to apply for registration
within 6 months
Has minimum net owned funds of Rs 2 Crore
or 15% of the value of assets to be
securitised
RBI to conduct inspection
Company should not have incurred losses in
any of the three preceding financial years
Co has made adequate arrangement for the
realisation of assets.

Directors should have adequate professional

experience
Board Should not consist of more than half of
its members as nominee of one agency
Rejection of Registration : opportunity of
hearing
Prior Approval : Required in case of
substantial Change in the management or
place of business.

Cancellation of Registration
Cease

to carry on business of securitisation

Fails to follow the directives of RBI
Fails to maintain accounts in the manner
prescribed by RBI
Fails to submit the returns or offer documents
for inspection

Filing of appeal : Within 30 days to Central

Govt.

Bank/FI will give notice of tarnsfer of assets

to the obligor
Upon receipt of notice, obligor hence forth
will make the payment to the company
Where no such notice is given and the
payment has been given to the original, same
will be held in the form of trust and will be
transferred to the company

Speedy Recovery of NPAs

Opening of New Business Area
Development of Securitisation Business
Reconstruction of Sick Units