This document discusses asset securitization, which involves issuing marketable securities backed by expected cash flows from receivables. Securitization allows for more efficient financing, improves balance sheets, and better manages risk. Any asset with predictable cash flows can be securitized, especially those in large pools with standardized documentation. The benefits of securitization are off-balance sheet financing, regulatory capital relief, and liquidity for originators. Investors benefit from economies of scale and credit enhancement. A robust financial infrastructure is required to support successful securitization.

1. Prathyush Raj.K
2010-45-104
ASSET 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 BE
SECURITIZED?
•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 of
originators
•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 SUCCESSFUL
ASSET 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 IN
SECURITIZATION
•Narasimham committee I & II
•Andhyarujina committee
Recommendations made by them
Empower 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!!!