Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto

loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). Loan securitization is the process of pooling various types of receivables, including mortgage loans and credit card receivables, and using them as collateral to issue securities. This structured finance process enables the originators of various types of loans to reduce their risk and adjust their finances. Home loans, auto loans, student loans and credit card receivables are the most common type of loans used as collateral to issue securities. Beginning of Loan Securitization Traditionally, banks and lending institutions held loans till their maturity or until the time they were paid off. These loans were funded by deposits and direct loans (which were not backed by any type of assets). However, the rising demand for credit forced these banks to search for alternate funding options. Securities backed by mortgage loans were the first ones to be issued in February 1970. Securitization techniques used in the housing loan segment were successfully adopted in the case of automobile loans in 1985. The process was then emulated in the case of credit card receivables and student loans. Over the past several years, loan securitization has been successfully utilized in the case of Community Reinvestment ACT (CRA) loans, which were targeted at low and moderate income borrowers, equipment leases and even small business loans. Traditionally, banks and lending institutions held loans till their maturity or until the time they were paid off. These loans were funded by deposits and direct loans (which were not backed by any type of assets). However, the rising demand for credit forced these banks to search for alternate funding options. Securities backed by mortgage loans were the first ones to be issued in February 1970. Securitization techniques used in the housing loan segment were successfully adopted in the case of automobile loans in 1985. The process was then emulated in the case of credit card receivables and student loans. Over the past several years, loan securitization has been successfully utilized in the case of Community Reinvestment ACT (CRA) loans, which were targeted at low and moderate income borrowers, equipment leases and even small business loans. SECURITIZATION IN INDIAThe growth in the Indian securitisation market has been largely fuelled by the repackaging of retail assets and residential mortgages of banks and FIs. This market has been in existence since the early 1990s, though has matured significantly only post-2000 with an established narrow band of investor community and regular issuers. According to Industry estimates, the structured issuance volumes have grown considerably in the last few years; though still small compared to international volumes. Asset backed securitisation (ABS) is the largest product class driven by the growing retail loan portfolio of banks and other FIs, investors familiarity with the underlying assets and the short maturity period of these loans. The mortgage backed securities (MBS) market has been rather slow in taking off despite a growing housing finance market due to the long maturity periods, lack of secondary market liquidity and the risk arising from prepayment/repricing of the underlying loan. In the early 1990s, securitisation was essentially a device of bilateral acquisitions of portfolios of finance companies. There were quasi-securitisations for sometime, where creation of any form of security was rare and the portfolios simply got transferred from the balance sheet of the originator to that of another entity. These transactions often included provisions, which offered recourse to the originator as well. In recent years, loan sales have become common through the direct assignment route, which is structured using the true sale concept. Though securitisation of auto loans remained the mainstay throughout the 1990s, over time, the market has spread into several asset classes housing loans, corporate loans, commercial mortgage receivables, future flow, project receivables, toll revenues, etc that have been securitised.

Within the auto loan segment, the car loan segment has been more successful than the commercial vehicle loan segment, mainly because of factors such as perceived credit risk, higher volumes and homogenous nature of receivables. Other types of receivables for which securitisation have been attempted in the past includes property rental receivables, power receivables, telecom receivables, lease receivables and medical equipment loan receivables. Revolving assets such as working capital loans, credit card receivables are not permitted to be securitised.

IDBIEstablishment The Industrial Development Bank of India or IDBI was established on 1st July, 1964 as an apex bank (the counterpart of Reserve Bank) in the field of industrial finance and capital market. However, it was de-linked from Reserve Bank on 16th February, 1976 and was given a separate independent entity under Central Government. It has completed 35 years on 30th June, 1999. Objectives It is the apex institution to co-ordinate, supplement, and integrate the activities of all existing specialized financial institutions. It is a re-financing and re-discounting institution operating in the capital market to re-finance term loans and export credits. It is in charge of conducting lechno-economic studies. It offers loans on purpose and not merely on the security of property as mortgage or pledge. In the beginning it was a subsidiary of the Reserve Bank of India and both had common board of directors. But since 1976 (Feb.) it has been de-linked from RBI. It has now its independent board representing the Government, Commercial Banks, Financial Institutions and industries. As an independent institution, it can now play much more effective role in rendering financial assistance. Thus, now we have evolved an integrated capital market structure for industrial finance functions. The IDBI undertakes:

Refinancing of loans granted by other special financial institutions, banks and cooperatives. Granting of loans to industrial units. Rediscounting of bills of exchange. Guaranteeing of loans and deferred payments. Planning and promoting industries. Investment in other financial corporations. Underwriting the issue of shares and debentures of industrial units.