01 securitization in india – issues and challenges
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Securitization is a mechanism that pools illiquid assets and converts them into tradable securities. This transforms illiquid receivables into liquid assets and restructures balance sheets. Securitization serves as a powerful tool for financial reengineering. Common assets that are securitized include mortgages, loans, and receivables. Pioneers of securitization include the US, UK, France, Australia, and others. The first securitized asset was automobile loans. The securitization process involves credit rating the receivables, selling the assets to a special purpose vehicle which issues securities to investors to fund the asset purchase. Key players are the originator, SPV, investors, and credit rating agencies. Challenges
01 securitization in india – issues and challenges
- 1. Dr.B. JOHNSON, Reader, F.M.N.COLLEGE, KOLLAM
- 2. What is securitization A mechanism of pooling of illiquid assets for converting them into tradable securities. Illiquid receivables are transformed into liquid assets. It restructures the balance sheet. Securitization serves as a very powerful tool of financial reengineering
- 3. ASSETS FOR SECURITIZATION Must have homogeneity with regard to three risks Credit Maturity Interest rate
- 4. Residential mortgages, Commercial and multi -family mortgages, Home loans, Automobile loans, Student loans, Credit card receivables,Boat loans, Warehouse loans etc
- 5. PIONEERS OF SECURITIZATION IN THE WORLD USA, UK, FRANCE, AUSTRALIA, BRAZIL, CANADA, HONGKONG, NETHERLANDS, JAPAN, GERMANY, MEXICO etc. THE FIRST ASSET SECURITIZED WAS AUTOMOBILE LOANS
- 6. % SHARE OF ASSETS SECURITIZED IN THE US IN2004
- 7. SECURITIZATION PROCESS Credit rating of the receivables Originator sell the assets to the SPV SPV gives money to the originator and issues tradable securities to fund the purchase of assets , directly to the investors or underwriters
- 8. OPERATORS OF SECURITIZATION THE ORIGINATOR/SELLER/SERVICER SPV-SPECIAL PURPOSE VEHICLE/ISSUER/TRUST INVESTORS CREDIT RATING AGENCIES
- 9. TYPES OF SECURI……IN INDIA ASSET BACKED SECURITIES(ABS) MORTGAGE BACKED SECURITIES(MBS) COLLATERALISED DEBT OBLIGATIONS(CDO) ASSET BACKED COMMERCIAL PAPER(ABCP)
- 10. ISSUES OF SECURITIZATION Heavy stamp duty Documentation Absence of proper taxation and accounting procedure Lack of appropriate legislation
- 11. CHALLENGES RATIONALISE STAMP DUTIES SIMPLIFY THE DOCUMENTATION PROCESS FORMULATE ADEQUATE LEGISLATION IMPART THE AWARENESS AMONG THE CORPORATES