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Securitization is the issuance of marketable securities backed by the expected cash flows from specific assets (receivables)
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What type of assets can be securitized? Any type of asset with a reasonably
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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.
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Types of Securitization MBS (Mortgage based securitization ) ABS (Asset based securitization)
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Regulatory capital relief Improvement of RoCE Multiple alternative sources of funding Conversion of illiquid assets into liquid securities
Systemically solves ALM problems in the
sector - mismatch due to difference in tenor and characteristics of assets (mostly fixed rate and up to 30 years) and liabilities
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Benefits to Investor 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
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Benefits to Financial System Cleaner books due to expertise of originators Systemically solves the ALM problems in the sector
Encourages an efficient market Results in substantial benefits to the end customer of home loans
What is required for a successful asset securitization? Robust financial infrastructure The Legal Environment
The Accounting Environment The Regulatory Environment The Taxation Environment Back-office Systems
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Drivers of Strong Investor Demand Receivables are sufficient to meet the payments
from receivables Investors have clear legal claims on the income from receivables and have adequate protection in the case of delinquency.
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Fund, in 1990
Rajasthan State Industrial and Development Corporation in 1994-95, structured by SBI cap.
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Ashok Leyland finance Cholamandalam investment & finance Esanda finance Sakthi finance Tata finance SRF finance
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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
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Committee involved in Securitization Narasimham committee I & II Andhyarujina committee Recommendations made by them Empower banks & FIs to take the possession of
the assets & to sell them without the intervention of the court, was enacted.
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