Securitisation

Scope of financial services

 Fund based services
 Underwriting
 Dealing in secondary market activities
 Participating in money market instruments like CPs, CDs etc.
 Equipment leasing or lease financing
 Hire purchase
 Venture capital
 Bill discounting.
 Insurance services
 Factoring
 Forfaiting
 Housing finance
 Mutual fund
Non fund based services (fee based
services)
 Securitisation
 Merchant banking
 Credit rating
 Loan syndication
 Business opportunity related services
 Project advisory services
 Services to foreign companies and NRIs
 Portfolio management
 Merger and acquisition
 Capital restructuring
 Debenture trusteeship
 Custodian services
 Stock broking
Introduction - securitization
 Debt securitization is a process of transformation of
receivables into security which may be traded latter in the
open market.
 B , the borrower
 L , the lender
 T , the trustee
 I , the investor
Process
 Step-1: B seeks a loan from L . If L is satisfied loan is granted with
agreed terms and conditions between B and L.

 Step-2: In the same fashion other borrowers also take loan from L.
Now , the loans granted by L are receivables of L . Such types of
loan are clubbed based on some predetermined criteria. As a
result a pool of assets is created. This pool is transferred in favor of
a SPV ( Special Purpose Vehicle ) , which act as a trustee (T)
for the investor(I).

 Step-3: T structures the pool and issues in the form of securities

to investor (I). The originator (L) usually keeps the difference
between interest on loan and interest paid to investor (I).
 The process of securitisation is generally without recourse
i.e. the investor bear the credit risks and the issuer (T) is
under obligation to pay to investors as and when cash is
received from borrower (B). The risks of investors can be
further reduced by way of insurance , guarantee , etc.
 T receives payment from B and makes payment to I. T can
invest the funds received by him in case there is a time lag
between receipt and payment
 Benefit to L:
 It is an additional source of capital without disturbing the
liability side
 Liquidity is enhanced
 Benefit to I:
 It is true that the investor bear the risk of non-payment. But the
securities are backed by adequate collateral and credit
enhancement insurance , guarantee
Advantages of securitization
 Additional source of fund
 Greater profitability
 Enhancement of CAR (capital adequacy ratio)
 Spreading Credit Risks
 Lower cost of funding
 Provision of multiple instruments
 Higher rate of return
 Prevention of idle capital
Standard categories of securitizations
 mortgage-backed securities (MBS), which are backed by
mortgages;
 asset-backed securities (ABS), which are mostly backed by
consumer debt;
 collateralized debt obligations (CDO), which are mostly
backed by corporate bonds or other corporate debt.
Corporate Advisory Services
 Project Consulting
 Mergers and Acquisition
 Disinvestment/ Bid Process Management
 Joint Venture/PPP Advisory
 Corporate Restructuring
 Infrastructure Advisory Services
 Monitoring of Public Issues
 Issue management services
Issue management and merchant
banking
 presentation