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INTRODUCTION
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said debt as bonds, pass-through securities, to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities, while those backed by other types of receivables are asset-backed securities. The so-called lower risk of securitised instruments attracts a greater number of investors seeking to benefit in the process of taking many individual assets and repackaging them as Collateralized debt obligation. With the claimed high degree of predictability in large groups and assumed predictability, investors usually prefer taking on risk, as a herd, rather than the total exposure inherent in direct investment in individual assets. Unlike general corporate debt, the credit quality of securitised debt is non-stationary due to changes in volatility that are time- and structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches will experience dramatic credit deterioration and loss. In developing countries, capital markets are underdeveloped, equity markets have limited public participation and tradable debt markets are still in their early stage of development. The investors who seek funds for investments have traditionally obtained their financing from commercial and development banks rather than from the capital markets. But here again, the range of financial services and products offered by financial intermediaries is quite limited in comparision to the range of financing options now available in developed financial systems. Again, from another angle also, secritisation is a boon to financial institutions. From the risk management point of view, the lending financial institutions have to absorb the entire credit risk by holding the credit outstandings in their own portfolio. Securitasion offers a good scope for risk diversification.

Definition
A carefully structured process whereby loans and other receivables are packaged , underwritten and sold in the form of asset backed securities.

What is SECURITISATION?
Secruritisation of debt or asset refers to the process of liquidating the illiquid and long term assets like loans and receivables of financial institutations like banks by issuing marketable securities against them. In other words, it is a technique by which a long term,non- negotiable and high value financial asset like hire purchase is converted into securitiesof small values which can be tradable in the market just like shares.

Thus, it is nothing but a process of removing long term assets from the balance sheet of a lending financial institution and replacing them with liquid cash through the issue of securities against them. Under securitisation, a financial institution pools its illiquid , non-negotiable and long term assets, creates securities against them, gets them rated and sells them to investors. It is an ongoing processin the sense that assets are converted into securites , cash into assets and assets into securities and so on.

Generlly, extension of credit by banks and other financial institutions in the form of bills purchased and discounting of hire purchase financiang appears as an asset on their balance sheets. Some of these assets are long term in nature and it implies that funds are locked up unnecessarily for an undue long period. So to carry on their lending operations without much interruptions, they have to rely upon various other sources of finance which are not only costly but also not availoable easily. Again, they have to bear the risk of the credit outstandings. Now, securitisation is a readymade solution for them. Securitisation helps them to recycle funds at a reasonable cost and with less credit risk. In other words, securitisation helps to remove these assets from the balance sheet of financial institutions by providing liquidity through tradable financial instruments

Structure
Pooling and transfer The originator initially owns the assets engaged in the deal. This is typically a company looking to either raise capital, restructure debt or otherwise adjust its finances. Under traditional corporate finance concepts, such a company would have three options to raise new capital: a loan, bond issue, or issuance of stock. However, stock offerings dilute the ownership and control of the company, while loan or bond financing is often prohibitively expensive due to the credit rating of the company and the associated rise in interest rates. The consistently revenue-generating part of the company may have a much higher credit rating than the company as a whole. For instance, a leasing company may have provided $10m nominal value of leases, and it will receive a cash flow over the next five years from these. It cannot demand early repayment on the leases and so cannot get its money back early if required. If it could sell the rights to the cash flows from the leases to someone else, it could transform that income stream into a lump sum today (in effect, receiving today the present value of a future cash flow). Where the originator is a bank or other organization that must meet capital adequacy requirements, the structure is usually more complex because a separate company is set up to buy the assets. A suitably large portfolio of assets is "pooled" and transferred to a "special purpose vehicle" or "SPV" (the issuer), a tax-exempt company or trust formed for the specific purpose of funding the assets. Once the assets are transferred to the issuer, there is normally no recourse to the originator. The issuer is "bankruptcy remote," meaning that if the originator goes into bankruptcy, the assets of the issuer will not be distributed to the creditors of the originator. In order to achieve this, the governing documents of the issuer restrict its activities to only those necessary to complete the issuance of securities. Accounting standards govern when such a transfer is a sale, a financing, a partial sale, or a part-sale and part-financing. In a sale, the originator is allowed to remove the transferred assets from its balance sheet: in a financing, the assets are considered to remain the property of the originator. Under US accounting standards, the originator achieves a sale by being at arm's length from the issuer, in which case the issuer is classified as a "qualifying special purpose entity".

Because of these structural issues, the originator typically needs the help of an investment bank (the arranger) in setting up the structure of the transaction. Securitization is very much closer to equity research. In a way, security analysis focuses on fundaments of a business. Likewise, securitization helps a the investor to adjudge the strength of a company. Servicing A servicer collects payments and monitors the assets that are the crux of the structured financial deal. The servicer can often be the originator, because the servicer needs very similar expertise to the originator and would want to ensure that loan repayments are paid to the Special Purpose Vehicle. The servicer can significantly affect the cash flows to the investors because it controls the collection policy, which influences the proceeds collected, the chargeoffs and the recoveries on the loans. Any income remaining after payments and expenses is usually accumulated to some extent in a reserve or spread account, and any further excess is returned to the seller. Bond rating agencies publish ratings of asset-backed securities based on the performance of the collateral pool, the credit enhancements and the probability of default. When the issuer is structured as a trust, the trustee is a vital part of the deal as the gate-keeper of the assets that are being held in the issuer. Even though the trustee is part of the SPV, which is typically wholly owned by the Originator, the trustee has a fiduciary duty to protect the assets and those who own the assets, typically the investors. Repayment structures Unlike corporate bonds, most securitizations are amortized, meaning that the principal amount borrowed is paid back gradually over the specified term of the loan, rather than in one lump sum at the maturity of the loan. Fully amortizing securitizations are generally collateralised by fully amortizing assets such as home equity loans, auto loans, and student loans. Prepayment uncertainty is an important concern with fully amortizing ABS. The possible rate of prepayment varies widely with the type of underlying asset pool, so many prepayment models have been developed in an attempt to define common prepayment activity. A controlled amortization structure is a method of providing investors with a more predictable repayment schedule, even though the underlying assets may be nonamortissing.

After a predetermined revolving period, during which only interest payments are made, these securitizations attempt to return principal to investors in a series of defined periodic payments, usually within a year. An early amortization event is the risk of the debt being retired early. On the other hand, bullet or slug structures return the principal to investors in a single payment. The most common bullet structure is called the soft bullet, meaning that the final bullet payment is not guaranteed on the expected maturity date; however, the majority of these securitizations are paid on time. The second type of bullet structure is the hard bullet, which guarantees that the principal will be paid on the expected maturity date. Hard bullet structures are less common for two reasons: investors are comfortable with soft bullet structures, and they are reluctant to accept the lower yields of hard bullet securities in exchange for a guarantee. Securitizations are often structured as a sequential pay bond, paid off in a sequential manner based on maturity. This means that the first tranche, which may have a one-year average life, will receive all principal payments until it is retired; then the second tranche begins to receive principal, and so forth.[12] Pro rata bond structures pay each tranche a proportionate share of principal throughout the life of the security.

Special types of securitization

Master trust A master trust is a type of SPV particularly suited to handle revolving credit card balances, and has the flexibility to handle different securities at different times. In a typical master trust transaction, an originator of credit card receivables transfers a pool of those receivables to the trust and then the trust issues securities backed by these receivables. Often there will be many tranched securities issued by the trust all based on one set of receivables. After this transaction, typically the originator would continue to service the receivables, in this case the credit cards. There are various risks involved with master trusts specifically. One risk is that timing of cash flows promised to investors might be different from timing of payments on the receivables. For example, credit card-backed securities can have maturities of up to 10 years, but credit card-backed receivables usually pay off much more quickly. To solve this issue these securities typically have a revolving period, an accumulation period, and an amortization period. All three of these periods are based on historical experience of the receivables. During the revolving period, principal payments received on the credit card balances are used to purchase additional receivables. During the accumulation period, these payments are accumulated in a separate account. During the amortization period, new payments are passed through to the investors. A second risk is that the total investor interests and the seller's interest are limited to receivables generated by the credit cards, but the seller (originator) owns the accounts. This can cause issues with how the seller controls the terms and conditions of the accounts. Typically to solve this, there is language written into the securitization to protect the investors and potential vegetables. A third risk is that payments on the receivables can shrink the pool balance and under-collateralize total investor interest. To prevent this, often there is a required minimum seller's interest, and if there was a decrease then an early amortization event would occur. Issuance trust In 2000, Citibank introduced a new structure for credit card-backed securities, called an issuance trust, which does not have limitations, that master trusts sometimes do, that requires each issued series of securities to have both a senior and subordinate tranche. There are other benefits to an issuance trust: they provide more flexibility in issuing senior/subordinate securities, can increase demand

because pension funds are eligible to invest in investment-grade securities issued by them, and they can significantly reduce the cost of issuing securities. Because of these issues, issuance trusts are now the dominant structure used by major issuers of credit card-backed securities. Grantor trust Grantor trusts are typically used in automobile-backed securities and REMICs (Real Estate Mortgage Investment Conduits). Grantor trusts are very similar to pass-through trusts used in the earlier days of securitization. An originator pools together loans and sells them to a grantor trust, which issues classes of securities backed by these loans. Principal and interest received on the loans, after expenses are taken into account, are passed through to the holders of the securities on a prorata basis. Owner trust In an owner trust, there is more flexibility in allocating principal and interest received to different classes of issued securities. In an owner trust, both interest and principal due to subordinate securities can be used to pay senior securities. Due to this, owner trusts can tailor maturity, risk and return profiles of issued securities to investor needs. Usually, any income remaining after expenses is kept in a reserve account up to a specified level and then after that, all income is returned to the seller. Owner trusts allow credit risk to be mitigated by overcollateralization by using excess reserves and excess finance income to prepay securities before principal, which leaves more collateral for the other classes.

Structured Securities Vs Conventional Securities

Securitisation is basically a structured financial transaction. It envisages the issue of securities against ill-liquid assets and such securities are really structured securities. It is so because, they are backed by the value of the underlying financial asset and the credit support of a third party also, at this stage, one should not confuse such structured securities with conventional securities like bonds, debentures, etc. They differ from each other in the following respects. (1) Source of repayment: In the case of conventional securities, the primary source of repayment is the earning power and cash flow of the issuing company. But, under securitization, the issuing company is completely free from this botheration since the burden of repayment is shifted to a pool of assets or to a third party. (2) Structure: Under securitization, the securities may be structured in such a way so as to achieve a desired level of risk and a desired level of rating depending upon the type and amount of assets pooled. Such a choice is not available in the case of conventional securities. (3) Nature: In fact, these structured securities are basically derivatives of the traditional debt instruments. Ofcourse, the credit standing of these securities is well supported by a pool of assets or by a guarantee or by both.

Securitisation Vs Factoring At this stage, one should not confuse the term securitisation with that of factoring. Since both deal with the assets viz., book debts and receivables, it is very essential that the differences between them must be clearly understood. The main differences are: (i) Factoring is mainly associated with the assets (book debts and receivables) of manufacturing and trading companies whereas securitisation is mainly associated with the assets of financial companies. Factoring mainly deals with trade debts and trade receivables of clients. On the other hand, securitisation deals with loans and receivables arising out of loans like Hire purchase finance receivables, receivables from Government departments etc. In the case of factoring, the trade debts and receivables in questions are short-term in nature whereas they are medium term or long-term in nature in the case of securitisation. The question of issuing securities against book debts does not arise at all in the case of factoring whereas it forms the very basis of securitisation. The factor himself takes up the collection work whereas it can be done either by the originator or by a separate servicing agency under securitisation. Under factoring, the entire credit risk is passed on to the factor. But under securitisation, a part of the credit risk can be absorbed by the originator by transferring the assets at a discount.

(ii)

(iii)

(iv) (v)

(vi)

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Modus Operandi
For the operational mechanics of securitizations, the following parties are required: 1. 2. 3. 4. 5. 6. 7. 8. The originator. A Special Purpose Vehicle(SPV) A merchant or investment banker. A credit rating agency. A servicing agent Receiving and Paying agent (RPA). The original borrowers or obligors. The prospective investors. i.e., the buyers of securities. The various stages involved in the working of securitisation are as follows:

i) Identification stage/process ii) Transfer stage/process iii) Issue stage/process iv) Redemption stage/process v) Credit rating stage/process Identification Process The lending financial institution either a bank or any other institution for that matter which decided to go in for securitization of its own assets is called the originator. The originator might have got assets comprising of a variety of receivables like commercial mortgages, lease receivables, hire purchase receivables etc. The originator has to pick up a pool of assets of homogeneous nature, considering the maturities, interest rates involved, frequency of repayments and marketability. This process of selecting a pool of loans and receivables from the eastern portfolios for securitization is called identification processes.

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Transfer Process After the identification process is over, the selected pool of assets are the passed through to another institution which is ready to help the originator to convert those pools of assets into securities. This institution is called the special purpose vehicle(SPV) or the trust. The pass through transaction between the originator and the SPV is either by way of outright sale i.e., full transfer of assets in question for valuable consideration or by passing them for a collateralised loan. Generally, it is done on an outright sale basis. This process of passing through the selected pool of assets by the originator to a SPV is called transfer process and once this transfer process is over, the assets are removed from the balance sheet of the originator. Issue Process After this transfer process is over, the SPV takes up the onerous task of converting these assets of various types of different maturities. It is on this basis, the SPV issues securities to investors. The SPV gets itself reimbursed out of the sale proceeds. The securities issued by the SPV is called by different names like Pay through Certificates, Pass through Certificates. The securities are structured in such a way that the maturity of these securities may synchronies with the maturities of the securitized loans or receivables. Redemption Process The redemption and payments of interest on these securities are facilitated by the collections received by the SPV from the securitised assets. The task of collection of dues is generally entrusted to the originator or a special servicing agent can b appointed for this purpose. This agency is paid certain percentage of commission for the collection services rendered. Usually, the originator is appointed as the servisor. Thus, under securitization, the role of the originator gets reduced to that of a collection agent on behalf of the SPV, in case he is appointed as a collection agent. A pass through certificate may be either with recourse top the originator or without recourse. The usual practice is to make

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it without recourse. Hence, the holder of a pass through certificate has to look to the SPV for payment of the principal and interest on the certificates held to him. Thus, the main task of the SPV is to structure the deal, raise proceeds by issuing pass through certificates and arrange for payment of interest and principal to the investors. Credit Rating Process Since the pass through certificates have to be publicly issued, they require credit rating by a good credit rating agency so that they become more attractive and easily acceptable. Hence, these certificates are rated at least by one credit rating agency on the eve of the securitisation. The issues could also be guaranteed by external guarantor institutions like merchant bankers which would enhance the credit worthiness of the certificates and would be readily acceptable to investors. Of course, this rating guarantee provides a sense of confidence to the investor with regard to the timely payment of principal and interest by the SPV. Pass through certificates, like debentures, directly reflect the ownership rights in the assets securitized, their repayment schedule, interest rate etc. These certificates, before maturity, are tradable in the secondary market to ensure liquidity for the investors. They are negotiable securities and hence they can be easily tradable in the market. Role Of The Merchant Bankers Merchant or investment bankers can play a big role in asset securitization. They generally act as SPV. There are many issues involved in securitisation namely the timing of the issue of pass through certificates, pricing of these certificates for marketing and above all underwriting of these issues. In all these aspects, merchant bankers have a definite role to play. The mere fact that in issue has been underwritten by a proper merchant banker will add credit to that issue and it would become more attractive from the investors point of view. Thus, securitisation enlarges the activities of the merchant bankers too.

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Role Of Other Parties The other parties in the game of securitization are the original borrowers and the prospective investors. The original borrowers refer to those who have availed of ten loan facilities from the lending institution, i.e., the originator. They are also called obligors. In fact the success of the securitization process depends upon these original borrowers. If they fail to meet their commitments on the due dates, the securitization process will be at danger. Infact the receipts of cash flows from the original borrowers are passed through to the investors. The prospective investors are nothing but the public at large who are willing to purchase the pass through certificates.

STRUCTURE FOR SECURITISATION/TYPES OF SECURITIES

Securitization is a structured transaction, whereby the originator transfers or sells some of its assets to a SPV which breaks these assets into tradable securities of smaller values which could be sold to the investing public. The appropriate structure for securitization depends on a variety of factors like quality of assets securitized, default experience of original borrowers, amount of amortization at maturity, financial reputation and soundness of the originator etc. The general principle is that the securities must be structured in such a way that the maturity of these securities may coincide with the maturity of the securitized loans. However, there are three important types of securities as listed below: 1. Pass through and pay through certificates, 2. Preferred stock certificates, and 3. Asset based commercial papers. Pass through and pay through Certificates In the case of pass through certificates, payments to investors depend upon the cash flow from the assets backing such certificates. In other words, as and when cash is received from the original borrower by the SPV, it is passed on to the holders of certificates at regular intervals and the entire principal is returned with the retirement of the assets packed in the pool. Thus, pass through certificates have a single maturity structure and the tenure of these certificates is matched with the life of the securitized assets.

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On the other hand, pay through certificates have a multiple maturity structure depending upon the maturity pattern of underlying assets. Thus, two or three types of securities with different maturity patters like short term, medium term and long term may be issued. The greatest advantage is that they can be issued depending upon the investors demand for varying maturity patterns. This type is more attractive from the investors point of view because the yield is often inbuilt in the price of securities themselves, i.e. , they are offered at a discount to face value as in the case of deep-discount bonds. Preferred Stock Certificates Preferred stocks are instruments issued by a subsidiary company against the trade debts and consumer receivables of its parent company. In other words, subsidiary companies buy the trade debts and receivables of parent companies, convert them into short term securities, and help the parent companies too enjoy liquidity. Thus trade debts can also be securitized through the issue of preferred stocks. Generally, these stocks are backed by guarantees given by highly rated merchant banks and hence they are also attractive from the investors point of view. These instruments are mostly short-term in nature. Asset-based Commercial Papers This type of structure is mostly prevalent in mortgage backed securities. Under this type, the SPV purchases portfolio of mortgages from different sources and they are combined into a single group on the basis of interest rates, maturity dates and underlying collaterals. They are, then, transferred to a trust which, in turn, issues mortgage backed certificates to the investors. These certificates are issued against the combined principal value of the mortgages and they are also short term instruments. Each certificate holder is entitled to participate in the cash flow from underlying mortgages to the extent of his investments in the certificates. Other Types Apart from the above, there are also other types of certificates namely: 1. Interest only certificates and 2. Principal only certificates.

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In the case of interest only certificates, payments are made to investors only from the interest incomes earned from the assets securitized. As the very name suggests, payments are made to investors only for the repayment of principal by the original borrowers, in case of principal only certificates. These certificates enable speculative dealings since the speculators known well that the interest rate movements would affect the bond values immediately. For instance, the principal only certificates would increase in value when interest rate go down. It is so because, it becomes advantageous to repay the existing debts and resort to fresh borrowings at lower cost. This early redemption of securities would benefit the investors to a greater extent. Similarly, when the interest rates go up, interest only certificate holders stand to gain since more interest would be available from the underlying assets. One cannot exactly predict the future movements of interest, and hence, these certificates give much scope for speculators to play their game. Thus, securitization offers much scope for the introduction of newer and newer instruments so as to meet the varying requirements of investors. Debt securitization offers a variety of investment instruments to the investing public at large as well as to financial intermediaries like mutual funds, insurance companies etc.

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SECURITISABLE ASSETS
As stated earlier, all assets are not suitable for securitization. For instance, trade debts and receivables are not generally suitable for securitization whereas they are readily acceptable to a factor. Only in rare cases, they are securitized. Example: Preferred Stock Certificates. The following assets are generally securitized by financial institutions: i) Term loans to financially reputed companies ii) Receivables from Government Department and Companies iii) Credit card receivable iv) Hire purchase loans like vehicle loans v) Lease finance vi) Mortgage Loans etc.

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BENEFITS OF SECURITISATION

Debt securitisation provides many benefits to all the parties, such as, the originator. Investors and the regulatory authorities. Some of the important benefits are the following: 1. Additional Source of Fund The originator (i.e.the lending institution) is much benefitted because securitisation provides an additional source of funds by converting an otherwise illiquid asset into an ready liquidity. As a result, there is an immediate improvement in the cash flow of the originator. 2. Greater Profitability Securitisation helps financial institutions to get liquid cash from medium term and long term assets immediately rather than over a longer period. It leads to higher recycling of funds which, in turn, leads to higher business turnover and profitability. Again. the cash flow could be recycled for investment in higher yielding assets. This means greater profitability. It results in additional business turnover. 3. Enhancement of Capital Adequacy Ratio Securitisation enables financial institutions to enhance their capital adequacy ratio by reducing their assets volume. The process of securitisation necessitates the selection of a pool of assets by the financial institutions to be sold or transferred, they are removed from the balance sheet of the originator. It results in the reduction of assets volume, thereby increasing the capital adequacy ratio.

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4. Spreading of Credit Risk Securitisation facilities the spreading of credit risk to different parties involved in the process of securitisation. In the absence of securitisation, the entire credit risk associated with a particular financial transaction has to be borne by the originator himself. Now, the originator is able to diversify the risk factors among the various parties involved in securitisation. Thus, it is used as tool for risk management. 5. Lower Cost of funding In view of enhancement of cash flows and diversifications of risk factors, securitisation enables the originator to have an easy access to the securities market at debt ratings higher than its overall corporate rating. It means that companies with low credit rating can issue asset backed securities at lower interest cost due to high credit rating on such securities. This helps it to secure funds at lower cost. 6. Provision of Multiple Instruments From the investors point of view, securitisation provides multiple new investment instruments so as to meet the varying requirements of the investing public. 7. Higher rate of Return When compared to traditional debt securities like bonds and debentures, securitised securities offer better rate of return along with better liquidity. These instruments are rated by good credit rating agencies and hence more attractive.

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8. Prevention of Idle Capital In the absence of securitisation, capital would remain idle in the form of illliquid assets like mortgages, term loans etc., in many of the lending institutions. Now, securitisation helps recycling of funds by converting these assets into liquidity, liquidity into assets, and so on by means of issuing tradable and transferable securities against these assets. 9. Better than Traditional Instruments Certificates are issued to investors against the backing of assets securitised. The underlying assets are used not only as a collateral to the certificates but also to generate the income to pay the principal and interest to the investors. It is better than even mutual fund units because it is issued against the backing for mutual fund certificates. Thus, these instruments, being structured asset backed securities, afford a greater protection to investors. 10.Other Benefits Securitisation, if carried out in true spirit, leads to greater economy in the use of capital with efficiency and cost effectiveness in both funding and lending. In the long run, it is beneficial to the borrowers also. They will be able to get funds at cheaper rates since the originators are likely to pass on the benefit to the ultimate borrowers. There is no doubt that securitisation is a low cost and innovative funding source ensuring economy in the use of capital.

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CONDITIONS FOR SUCESSFUL SECURITISATION

If securitization of debt has to be successful, the following conditions must have been fulfilled. 1. Ultimately, the success of securitization depends upon the ability of the original borrower to repay his loan. Therefore, selection of assets to be securitized requires utmost care. The assets should be ranked and selected on the basis of least losses to provide for maximum protection to investors. 2. The credit rating is an integral part of securitization. Hence, credit rating must be done by credit agencies on a scientific basis and the ratings should be unquestionable. Then only, the prospective investors confidence can be built. The credit rating agencies should take into account the various types of risk such as credit risk, interest risk, liquidity risk etc. along with other usual factors. 3. The SPV should be a separate organization from that of originator. It should be completely insulated from the parent corporate entity so that SPV could be protected from the danger of bankruptcy. 4. The pass through certificates or any other similar instruments arising out of securitization must be listed in stock exchanges so that they may be readily acceptable to investors. It would provide instant liquidity and moreover, its price could also be easily ascertained. 5. Alternatively, it is also advisable to provide two-way quotation for facilitating the buying and selling of pass through certificate in the market as in case of mutual fund units. 6. There must be standardized loan documentation for similar loans so that there may be uniformity between different financial institutions. It must carry a right to assign debts to third parties, so that, it could be sold or transferred to the SPV.

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7. There should be a proper accounting treatment for the various transitions involved in asset securitization. Suitable accounting norms for recognisation of the trust created for securitized debt should be evolved. The accounting system should provide for the removal of the securitized assets from the balance sheet of the originator. Only then, the real benefit will go to the originator. 8. Above all, there should be proper and adequate guidelines given by the regulatory authorities dealing with the various aspects of the process of securitization.

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Securitization in India
The concept of asset securitization is slowly entering into the Indian soil. Financial institutions have not yet come forward to make use of this avenue for financing a large scale. However, there is a tardy movement of the financial institutions in resorting this mode of financing. The securitization of the ICICIs receivables by the Citibank in February 1991 is the first attempt in this direction. A sum of Rs.15 corers was raised by means of securitization of assets. Following this, the Hire purchase portfolio of TELCO was securitized by the Citibank. Again, the Retail Residential Receivables DLF International were also securitized by the Citibank in June 1992. The Citibanks own portfolio of Citimobile Scheme was subject to securitization. In fact the Citibank has pioneered this trend in India. Now, the HDFC has taken up this route along with the Citibank. The HDFC is on the way to securitize its housing loan portfolio around Rs.50 corers. Infrastructure Leasing and Financial services is also expected to enter into this field by setting up a SPV. If securitization has to become popular in India, the commercial banks should enter into this field in a big way. In fact, the commercial banks can remove the non-performing assets from their balance sheet by resorting to this technique. At the same time, they can recycle the funds for greater profitability. If financial institutions have to meet their ever-increasing capital requirements, securitization would goa long way in mobilizing adequate resources.

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New Guidelines on Securitisation

Recently the RBI has issued guidelines allowing commercial banks to finance Special Purpose Vehicles (SPVs) which have been formed to transfer securitized assets separated from them some of the important guidelines are: 1. All banks, Term lending institutions and NBFCs have to securitize only standard assets. 2. Banks can finance SPVs which are engaged in transferring securitized assets. 3. While financing SPVs, an independent third party, other then the originators (banks) group entities, should provide atleast 25 per cent of the liquiding facility. It means that every bank should locate a third party for financing SPVs. 4. The liquidity facility provided by banks should not be available for: (a) Meeting recurring lapenses of securitization, (b) Funding acquistio of additional assets by SPVs, (c) Funding the financial scheduled repayment of investors, and (d) Funding breach of warranties.

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Causes for the Unpopularity of Securitisation in India

Though securitization brings many benefits, it is not firmly rooted in Indian soil due to the following reasons: 1. New Concept 2. Heavy Stamp Duty and Registration fees 3. Cumbersome Transfer Procedures 4. Difficulty in Assignment of Debts 5. Absence of Standardized Loan Documentation 6. Inadequate Credit Rating facilities 7. Absence of Proper Accounting Procedures 8. Absence of Proper Guidelines.

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CONCLUSION

As most of the innovations in the financial services industry directly benefit the customer, these innovations like factoring and securitisation directly bring benefits to the financial institutions themselves first and then to the public at large. it is high time that the government cane forward with all positive health to encourage securitisation in India .The immediate need of the hour is to amend various relevant acts like the transfer of property act, 1882,the registration act 1908,stamp law act, 1908 ect.to make asset securitisation a smooth affair. Proper accounting procedures should be evolved besides appropriate guidelines by the regulatory authorities. Securitisation would facilitate the transfer of capital from nonperforming and ideal assets to more efficient assets. Creation of new debt instruments would further deepen the financial market. On the whole, the economy would be developed at a faster rate than what it is, if securitisation becomes a popular technique of financing. Since the stamp duties have been considerably reduced in states like Maharashtra and the national stock exchange has decided to list securitised assets, securitisation is expected to have a very bright future in India and the debt market has expected to become very active in the days to come.

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BIBLIOGRAPHY
From the books: Financial markets and Service by Gordon and Natrajan. Securitisation of Financial Assets by P. K. Malik.