SECURITIZATION  

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1

Securi2za2on  

•  A  careful  structured  process  where  by  loans  and  other  receivables  are  packaged,  underwritten  and  sold  in  the  form  of  assets  backed  securities.  

•  Securitization  is  nothing  but  liquifying  assets  comprising  loans  and  receivables  of  an  institution  through  systematic  issuance  of  financial  instruments.  

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concept  

•  Securitization  is  mainly  associated  with  the  assets  of  financial  companies.  

•  The  lending  financial  institution  which  decides  to  go  in  for  securitization  is  called  originator.  

•  The  concept  of  securitization  is  associated  with  debt  market.  

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Lloyd Bancaire I Capital Markets

WORKING OF SECURITISATION

 Various stages involved in the working of securitization are as follows: • Identification stage/process

• Transfer stage/process

• Issue stage/process

• Redemption stage/process

• Credit Rating stage/process

Types  of  securi2za2on  

•  Pass  through  and  pay  through  certificates  •  Preferred  stock  certificates    •  Asset  based  commercial  papers  

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Par2es  to  an  issue  

•  Originator  •  SPV  (special  purpose  vehicle)  •  Barrowers  •  Investors  •  Collection  agent    •  Credit  rating  agency  •  Merchant  banker  

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SECURITISABLE  ASSETS    •  The  following  assets  are  generally  

securitized  by  financial  institution:  •  Term  loans  to  financially  reputed  companies  •  Receivables  from  Government  Departments  and  Companies  

•  Credit  card  receivables  •  Hire  purchase  loans  like  vehicle  loans  •  Lease  Finance  •  Mortgage  Loans  etc.  

Benefits  of  securi2za2on    

•  Gains  to  originators    •  Gains  to  investors  •  Gains  to  borrowers  •  General  gains  

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Benefits  of  securi2za2on    contd…..  

•  Additional  source  of  fund    •  Greater  profitability  •  Enhancement  of  capital  adequacy  ratio    •  Spreading  of  credit  risk    •  Lower  cost  of  funding  •  Provision  of  multiple  instruments  •  Higher  rate  of  return        

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Disadvantage  of  securi2za2on    

•  New  concept    •  Heavy  stamp  duty  and  registration  fees  •  Difficult  transfer  procedures  •  Difficulty  in  assignment  of  Debts  •  Absence  of  standardized  loan  documentation  

•   inadequate  credit  rating  facilities  •  Absence  of  proper  accounting  procedures  •  Absence  of  proper  guidelines  

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THANKING  YOU  

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