Asset securitization
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Asset securitization






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Asset securitization Presentation Transcript

  • 1. Prathyush Raj.K 2010-45-104ASSET SECURITIZATION
  • 2. SECURITIZATION Securitization is “the issuance of marketable securities backed by the expected cash flows from specific assets (receivables)”
  • 3. WHY SECURITIZE ASSETS?•More efficient financing•Improved balance sheet structure•Better risk management
  • 4. WHAT TYPE OF ASSETS CAN BESECURITIZED?•Any type of asset with a reasonably predictable stream of future cash flows can be securitized.•Assets that are easiest to securitize are those: that occur in large pools; for which past experience can be used to predict default rates; for which documentation is standardized; and for which ownership is transferable.
  • 5. TYPES OF SECURITIZATION•MBS (Mortgage based securitization )•ABS (Asset based securitization)
  • 6. BENEFITS TO ORIGINATOR•Off balance sheet financing•Regulatory capital relief•Improvement of RoCE•Multiple alternative sources of funding•Conversion of illiquid assets into liquid securities•Systemically solves ALM problems in the sector - mismatch due to difference in tenor and characteristics of assets (mostly fixed rate and up to 30 years) and liabilities
  • 7. BENEFITS TO INVESTOR Enjoys low cost operations and servicing due to economies of scale of the originator Credit risk is minimized Exposure on rated, low-risk housing loans Expertise of originators helps maintain quality of underlying assets Credit enhancement possible
  • 8. BENEFITS TO FINANCIAL SYSTEM•Cleaner books due to expertise oforiginators•Systemically solves the ALM problems in the sector•Encourages an efficient market•Results in substantial benefits to the end customer of home loans
  • 9. WHAT IS REQUIRED FOR A SUCCESSFULASSET SECURITIZATION?Robust financial infrastructure –The Legal Environment –The Accounting Environment –The Regulatory Environment –The Taxation Environment –Back-office Systems
  • 10. DRIVERS OF STRONG INVESTOR DEMAND Receivables are sufficient to meet the payments promised by the SPV Drivers of Strong Investor Demand Safeguards exist to provide for shortfalls in cash from receivables Investors have clear legal claims on the incomefrom receivables and have adequate protectionin the case of delinquency.
  • 11. STRONG INVESTOR DEMAND CONTD… Credit Enhancement –Third Party Guarantees –Subordinated debt –Over-Collateralization –Cash Collateral Accounts
  • 12. COMMITTEE INVOLVED INSECURITIZATION•Narasimham committee I & II•Andhyarujina committeeRecommendations made by themEmpower banks & FI’s to take the possession of the assets & to sell them without the intervention of the court, was enacted.
  • 13. WHEN THE BILL WAS PASSED?•The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002. on 21.06.2002.•It received the assent of the President on 17.12.2002 and has now become an Act.
  • 14. THANK YOU!!!