Académique Documents
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Asset Securitisation
03/09/2005
Reserve Bank of India
P. Vasudevan, MoF
Impaired Credit
as % of
outstanding loans
Net NPAs as % of
outstanding Loans
85436
1.9
1.4
(ii) Consumer
Durables
6256
6.6
4.0
6167
6.3
2.4
89537
2.6
1.6
189041
2.5
1.6
880312
7.4
2.8
Items
(i) Housing Loan
1200
$1,137
US Public
1000
US Private
Europe
Asia
$ Bn
$792
800
$710
$580
$455
600
$414
$347
$355
$287
400
$216
$124
200
$88
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 YTD
3
(Contd.)
Originator
Sale
Consideration
Sale of Debt
service receivables
Servicing of notes
Loan/ Receivable
Obligor
SPV
Steps in securitisation
Identification
of assets
Resolving
asset related
legal issues
Transaction
structuring
SPV
structuring
System due
diligence and
upgradation
Transaction
rating
Legal vetting
and
documentation
SPV formation
and document
execution
Syndication
Originate
Book
Fund
New system
Originate
Structure
Thrift
Commercial
bank
Retail
securities
firm
Investment
bank
Retail
securities
firm
Credit
Enhance
Insurance
company
Place
Pension fund
Thrift
Insurance
company
Individual
Trade
Investment
bank
Commercial
bank
Service
Investment
bank
Commercial
bank
Specialist
payments
processor
Obligors
Collections
Original
Loan
Credit enhancement
Issue of securities
Cash flows
Servicer
SPV
Sale of
asset
Servicing
of securities
Rating
Originator
Purchase
consideration
Rating Agency
Structurer
Investors
Subscription to securities
Arranger
Contracts
Ongoing cash flows
Initial cash flows
Why Securitisation
The Issuer / Originator
Ability to raise cheaper / longer / more finance
Receivables being replaced by cash thereby improving the liquidity
position
Ability to finance structures which would not get financed through
normal banking products
Freeing of capital capital relief
Enables a trim (manageable level of assets) and transparent
(identification of assets) balance sheet Manage ALM mismatches & reduces market risk (by reducing
interest rate mismatches)
Enables off-balance sheet financing
Strategic / Tax reasons
Concentration / Exposure related issues
Improve RoA / RoE by recycling of assets / funds
Reserve Bank of India
Why Securitisation
The Investor
Why Securitisation
The financial system
Increases the number of debt instruments in the
market
Provides additional liquidity in the market
Facilitates unbundling, better allocation and
management of project risks
Widens the market by attracting new players
Removes dullness in the markets
Can usher in tailor-made products
Removes burden of bad / problem loans
Risk diversification across various players
Asset Reconstruction
SC / RC acquires assets from banks and FIs by issue of
debenture or bond or any other security or by an
agreement
SC / RC may undertake the following measures for the
purpose of reconstruction :
Asset Classification
Assets to be treated as standard asset during the
planning period.
On expiry of plan period, after taking into account the
degree of well-defined credit weaknesses and extent
of dependence on collateral security for realisation,
classify the assets into :
Trusts
SC / RC to transfer assets acquired to the Trust at the
price at which acquired from the originator
The trusteeship vests with SC / RC only
SC / RC to formulate a policy for issue of SRs, to be
approved by BOD
SRs transferable only in favour of QIBs
Disclosures to be made in the offer document relating
to issuer of SRs, terms of offer, rating
Issues in Securitisation
Offshore securitisation
Permit FIIs to invest in SRs ?
True Sale ?
Originating institution investing in SRs / PTCs
Sale of PAs to SCs / RCs
Securitisation outside the Act
Guidelines.(Contd.)
Staff Accountability should continue to be examined
Standard Asset for 90 days in the books of the purchaser. Existing
classification of the same obligor need not be re-examined
If guidelines not completely adhered to, the asset status would be
carried forward to the books of the purchaser
Any restructuring / rescheduling / rephasing of repayment schedule
/ cash flow of the NPFA by the purchaser will render the account as
NPA
Sale below NBV Debit to P&L A/c.
Sale more than NBV Excess provisions not to be reversed
Recoveries adjusted first against acquisition cost and then to profit
Compliance with exposure norms required.
100% RW for Capital Adequacy
Sufficient disclosure required in the Notes to Accounts
Submit all relevant reports to RBI and CIBIL
Reserve Bank of India
Any Questions ??
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