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  • Securitisation

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    Amit Gupta
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    Securitization is a process where assets are pooled, converted into marketable securities, and sold to investors. The originator identifies assets to securitize and transfers them to a special purpose vehicle (SPV) which issues pass-through certificates. The SPV collects payments on the assets and uses them to pay investors. This allows companies to issue securities with higher credit ratings than themselves at lower interest costs, converting illiquid assets into liquid assets. However, problems include a lack of long-term investors, legal hurdles in repossessing assets, and high taxes on SPVs.

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    Securitization is a process where assets are pooled, converted into marketable securities, and sold to investors. The originator identifies assets to securitize and transfers them to a special purpose vehicle (SPV) which issues pass-through certificates. The SPV collects payments on the assets and uses them to pay investors. This allows companies to issue securities with higher credit ratings than themselves at lower interest costs, converting illiquid assets into liquid assets. However, problems include a lack of long-term investors, legal hurdles in repossessing assets, and high taxes on SPVs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    Download as ppt, pdf, or txt
    37 views8 pages

    Securitisation

    Uploaded by

    Amit Gupta
    Securitization is a process where assets are pooled, converted into marketable securities, and sold to investors. The originator identifies assets to securitize and transfers them to a special purpose vehicle (SPV) which issues pass-through certificates. The SPV collects payments on the assets and uses them to pay investors. This allows companies to issue securities with higher credit ratings than themselves at lower interest costs, converting illiquid assets into liquid assets. However, problems include a lack of long-term investors, legal hurdles in repossessing assets, and high taxes on SPVs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    of 8

    ASSET SECURITISATION

    MEANING
    Securitisation is a process by which the assets of

    homogenous nature are picked up (cherry picking)


    from the balance sheet, bundled together and converted into securities of convenient size and issued in the market through a merchant banker known as special purpose vehicle (spv)

    Securitisation Process
    The originator (company) identifies the assets for securitisation purposes and transfers to the special

    purpose vehicle (SPV)


    SPV issues pass Through certificate Pass through certificates are sold in the market and financial institutions invest in it. The collection agent collects the assets on the maturity dates and transfer to the spv The SPV will make payment to investors

    Advantages
    Companies having low credit rating can issue asset

    backed securities with higher credit rating and at


    lower interest cost. Conversion of illiquid assets into liquid assets Improved capital adequacy

    Advantages
    Operation in a particular business area/portfolio can be increased without increasing the total exposure to that of the area of assets More economies of scale of operations Additional income to the originator when acts as collection agent Spread between interest rate offered to the investors

    and the interest earned on the assets constitutes the


    profit
    5

    Credit Rating
    Securities are to be rated by credit rating agencies Minimum rating bbb Rating agencies rate the transaction and evaluate

    the aggregate risk from the four major areas:


    collateral risk structural risk legal risk third party risk

    Securitisation in India
    Originated by icici in 1991 by securitising the bills

    receivables under the sellers lines of credit


    Subsequently,the car loans were securitised Since then, over 300 asset pools aggregating more than 500 crores have been securitised

    Problems
    Lack of investors with liabilities matching the assets Statutory agencies like insurance companies, epf are not allowed to invest in pass through certificates Interest rate is not attractive compared to the maturity period Court intervention is required for repossession of the mortgaged assets Spv is assessed for income tax at the maximum marginal rate Stamp duty is to be paid on the transfer transactions
    8

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