(FS12) Securitisation

8/8/2019 (FS12) Securitisation

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K. R. Sharma


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Securitization is transformation of an illiquid asset (Debts,

Mortgages, Charges) in to a security that may be later ontraded in financial market.

Securitisation of assets is the process of converting a poolof assets (Future Income, Future Revenue), whichgenerate a steady stream of cash flow in to tradable debt

securities.

Asset securitisation is a product of financial engineering,which enables structuring and selling of negotiableinstruments, in order to spread risk over a larger group ofinvestors, a risk which would normally be taken by lenders

or a consortium and there by make available funds to

borrowers, which otherwise would not have been


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1. Risk Coverage

2. Increased Liquidity

3. Clearing the Balance Sheet4. Balancing Debt Equity Ratio

5. Increased Business Opportunities

6. Financial Engineering7. Special Purpose Vehicle


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1. Homogenous Class

2. Satisfactory Credit Status

3. Reasonable Assurance of Cash Flow4. Low Delinquency

5. Amortization Feasible

6. Available Underlying Collateral7. Favourable Market Conditions


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1. Originator

2. Issuer

3. Servicer4. Trustees

5. Credit Rating Agency

6. Credit Enhancer


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Based on Nature of Security1. Asset Based

(a) Securitisation of Receivables(b) Debentures Securitisation(c) Securitisation of Future Income

2. Mortgage Based Securitisation

Based on Structure1. Pass Through Structure2. Pay Through Structure

3. Senior Subordinate Structure


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1. Initiation by Originator

2. Transfer of Asset to a SPV

3. Rating of Instruments by a Rating Agency4. Issue of Securities

5. Credit Enhancement6. Servicing of Securities

7. Redemption of Securities


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Benefits to Originator

Benefits to Investor

Benefits to Borrower Benefits to Economy


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1. Liquidity of Portfolio

2. Reduction in Funding Cost

3. Reduction in Risk Exposure4. Balance Sheet Size

5. Improvement in Financial Ratios6. Asset Liability Matching

7. Better Marketability


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1. Wider Choice of Securities

2. Higher Return

3. Reduced Risk


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1. Wider Choice of Sources

2. Greater Funding Support

3. Lower Cost of Funds


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1. Competitve Advantage

2. Freedom of Migration to Capital

3. Wider Pool of Investors4. Wider Group of Borrowers

5. Augmentation of Pool of Funds6. Meeting Capital Adequacy Requirement


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1. Stamp Duty Burden

2. Tax Liability

3. Documentation4. Administered Interest Rate Structure

5. Regulatory Norms6. Return on Investment not Commensurate

with Risk7. Development of Securities Market


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1. Development of Prudential Norms

2. Regulatory Provisions

3. Put Option for Investors4. Accounting Standards

5. Statutory Safeguards6. Listing of Securities

7. Investment Promotion Measures8. Public Private participation


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Thanks

Documents

(FS12) Securitisation