Section 5 of the Securitisation and
Reconstruction of Financial Assets
and Enforcement Security Interest
Act,2002, mandate...
Acquisition of rights or interest in
assets & affects of acquisition
any financial assets acquired by the
securitisation c...
EXAMPLE OF SECURITISATION
• CONSIDER A BANK, XYZ BANK. THE LOAN
GIVEN OUT BY THIS BANK ARE ITS ASSETS.
THUS THE BANK A POO...
To free these blocked funds the assets
are transferred by the originator (the
entity who holds the assets, XYZ Bank
in thi...
The SPV (any securitisation
company or reconstruction
company) is a separate entity
formed exclusively for the
facilitatio...
Once assets are securitised, these
assets are removed from the bank’s
books and the money generated
through securitisation...
For an originator (XYZ bank in the
example) securitisation is an
alternative to corporate debt for
meeting its funds requi...
The originator can get funds from new
investors and additional funds from
existing investors at a lower cost than
debt.
ARC can take the following
for the purposes of asset
reconstruction – Proper mangement of
the business of the borrower, by...
the business of the borrower.
Rescheduling of payment of debts
payable by the borrower. Enforcement
of security interest i...
Settlement of dues payable by the
borrower. Taking possession of
secured assets in accordance with the
provisions of the A...
Securitisation or Reconstruction
Company may do the following also in
accordance with Section 10 of the Act:
(a) act as an...
(b) act as a manager referred to in
clause
(c) of Sub-section 13 on such fee as
may be mutually agreed upon
between the pa...
It is must for securitisation or
reconstruction company which has
been granted a certificate of
registration cannot commen...
The Reserve Bank has issued the
Securitisation Companies and
Reconstruction Companies (Reserve
Bank) Guidelines and Direct...
Pass Through Certificate (PTC)
A document that allows the holder to
receive payments of principal and
interest from the un...
In simple manner the banks, through
PTCs, transfer some of their longterm
mortgaged assets (receivbles) on to
other invest...
Why do they do this?

They do this because they want to
share some of their risks with other
players. Investor get interes...
The transfer is done by meant of a
Special Purpose Vehicle (SPV) which
mediates between the investor and
borrower. The PTC...
Thus the borrower is accountable to
the investor instead of the bank. What
happens when the borrower starts to
default. If...
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Section 5 of the securitisation and reconstruction of

  1. 1. Section 5 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act,2002, mandates that only banks and financial institutions can securitise their financial assets.
  2. 2. Acquisition of rights or interest in assets & affects of acquisition any financial assets acquired by the securitisation company or the reconstruction company, then on such acquisition, by the said securitisation company or reconstruction company shall be deemed to be the lender.
  3. 3. EXAMPLE OF SECURITISATION • CONSIDER A BANK, XYZ BANK. THE LOAN GIVEN OUT BY THIS BANK ARE ITS ASSETS. THUS THE BANK A POOL OF THESE ASSETS ON ITS BALANCE SHEET AND SO THE FUNDS OF THE BANK ARE LOCKED UP IN THESE LOANS. THE BANK GIVES LOANS TO ITS CUSTOMERS.THE CUSTOMERS WHO HAVE TAKEN A LOAN FROM THE XYZ BANK ARE KNOWN AS OBLIGORS.
  4. 4. To free these blocked funds the assets are transferred by the originator (the entity who holds the assets, XYZ Bank in this example) to a special purpose vehicle (SPV)
  5. 5. The SPV (any securitisation company or reconstruction company) is a separate entity formed exclusively for the facilitation of the securitisation process and providing funds to the originator.
  6. 6. Once assets are securitised, these assets are removed from the bank’s books and the money generated through securitisation can be used for other profitable uses, like giving new loans.
  7. 7. For an originator (XYZ bank in the example) securitisation is an alternative to corporate debt for meeting its funds requirements. As securitised instruments can have a better credit rating than the company.
  8. 8. The originator can get funds from new investors and additional funds from existing investors at a lower cost than debt.
  9. 9. ARC can take the following for the purposes of asset reconstruction – Proper mangement of the business of the borrower, by change in, or take over of the management of the business of the borrower.
  10. 10. the business of the borrower. Rescheduling of payment of debts payable by the borrower. Enforcement of security interest in accordance with the provisions of the Act.
  11. 11. Settlement of dues payable by the borrower. Taking possession of secured assets in accordance with the provisions of the Act.
  12. 12. Securitisation or Reconstruction Company may do the following also in accordance with Section 10 of the Act: (a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fees or charges as may be mutually agreed upon between the parties.
  13. 13. (b) act as a manager referred to in clause (c) of Sub-section 13 on such fee as may be mutually agreed upon between the parties (c) act as receiver if appointed by any court or tribunal.
  14. 14. It is must for securitisation or reconstruction company which has been granted a certificate of registration cannot commence or carry on any business other than that of securitisation or asset reconstruction without prior approval of the Reserve Bank.
  15. 15. The Reserve Bank has issued the Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 and Guidelines on sale of financial assets to securitisation/reconstruction company and related issues.
  16. 16. Pass Through Certificate (PTC) A document that allows the holder to receive payments of principal and interest from the underlying pool of mortgages. PTC are issued by banks as a safeguard against risks.
  17. 17. In simple manner the banks, through PTCs, transfer some of their longterm mortgaged assets (receivbles) on to other investor like NBFCs and Mutual Funds.
  18. 18. Why do they do this? They do this because they want to share some of their risks with other players. Investor get interested because they stand to earn more for sharing the risk.
  19. 19. The transfer is done by meant of a Special Purpose Vehicle (SPV) which mediates between the investor and borrower. The PTC ensures that the loan repayment is made to the investor instead of the bank.
  20. 20. Thus the borrower is accountable to the investor instead of the bank. What happens when the borrower starts to default. If the borrower starts defaulting, the SPV sells off the mortgaged asset & recovers the money

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