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Presented By:
Aniket Metkar 109 Arun Nambiar Harsh Sankhala 62 Harshil Jariwala 113 Lohit Sharma 105
What is Securitization?
Benefits of Securitization
Process of Securitization
Characteristics of an Asset
Instruments of Securitization
RBI Guidelines
Securitization
Securitisation involves pooling of homogeneous assets and the subsequent sale of the cash flows from these asset pools to investors. Redistribution of credit risk
Benefits
Opportunity to potentially
earn higher rate of return.
Transfer of risk
Locking in profits
Portfolio Diversification
Process of Securitization
Obligator (Borrower)
Principa l Asset Sale of Assets
Originator
Consideration For asset
SPV
Investor
Rating Agency
Structurer
SARFAESI Act
The Securitization And Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Objective - to strengthen creditor rights Chapter 1: Short Title and commencement Chapter II :Regulations
New existing company, minimum paid up 2. Cr Existing company should comply within 6 months Companies are registered with RBI, any change in management cannot be done without RBI approval Cannot carry another business activity RBI may cancel a certificate of registration
Chapter IV : Central registry for the purpose of securitization Chapter V : Offences and penalties Chapter VI : Miscellaneous
Credit Enhancements
Definition
Variousmeansthatattempttobuffer investors against losses on the asset collaterisingtheirinvestments. Direct exposure on performance of assets No recourse to the originator Essential to secure a high level of credit rating
INTERNAL
EXTERNAL
Credit trenching
Insurance
Spread account
Letter of credit
Asset Characteristics
Cash Flow Security Distributed Risk Homogeneity No Executory Clause Independence From Originator
Instruments of Securitization
Pass through Certificates
Instruments of Securitization
Pay through Certificates
Instruments of Securitization
Stripped Securities
Interest only Principal only
Minimum Holding Period (MHP) Minimum Retention Requirement (MRR) Limit on Total retained exposure Originator may have max of 20% stake in Securities issued by SPV Booking of profit upfront Treatment of profit arising out of securitization of loans Disclosure To be made in Servicer, Investor, Trustee report True Sale Criteria
Types of securities
Mortgage backed Securities (MBS) Collateralized mortgage obligation (CMO) Derivate of mortgage pass through securities Asset Backed Securities (ABS) Collateralized Debt Obligations (CDO) Derivate of Asset Backed securities
Directorbilateralassignmentofretailloanpoolsisdirectsaleofa selectedloanpoolbytheOriginatortothePurchaser(orAssignee) together with limited credit support. Since FY2009, about 75-80% of the total number of ABS and RMBS transactions has been in the nature of direct assignment transactions. Most issues had simple structure with single tranche. Preferred Credit enhancement method was Cash Collateral.
References:
Financial Management : M Y Khan and P K Jain RBI Master circular- Revisions to the Guidelines on Securitisation Transactions
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