securitisation

Click to edit Master subtitle style Securitization

Securitization is the issuance of marketable securities backed by the expected cash flows from specific assets (receivables)

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Why securitize assets? More efficient financing

Improved balance sheet structure Better risk management

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What type of assets can be securitized? Any type of asset with a reasonably

predictable stream of future cash flows can be securitized.

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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.

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Types of Securitization MBS (Mortgage based securitization ) ABS (Asset based securitization)

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Benefits to Originator 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 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

ALM-Asset Liability Management

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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

promised by the SPV

Safeguards exist to provide for shortfalls in cash

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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Credit Enhancement Third Party Guarantees

Subordinated debt Over-Collateralization Cash Collateral Accounts

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SECURITISATION IN INDIAN CONTEXT

First deal in India between Citibank and GIC Mutual

Fund, in 1990

for Rs. 160 million.

Securitization of cash flow of high value customers of

Rajasthan State Industrial and Development Corporation in 1994-95, structured by SBI cap.
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Securitisation of overdue payments of UP

Mega securitization 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.

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Some of the companies that have been Involved in this are

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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When the bill was passed? 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.

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