SECURITIZATION IN INDIA

BY:
NEHA SHRIVASTAVA
NEHA.G. RAI

WHAT IS SECURITIZATION?

Securitization is the process of conversion of

existing assets or future cash flows into
marketable securities. In other words,
securitization deals with the conversion of
assets which are not marketable into
marketable ones.

WHY SECURITIZE ASSETS?

More

efficient financing.

Improved
Better

balance sheet structure.

risk management.

TYPES OF SECURITIZATION:

MBS ( Mortgage based securitization).

ABS ( Asset based securitization).

For the purpose of distinction, the conversion of
existing assets into marketable securities is known
as asset-backed securitization and the conversion of
future cash flows into marketable securities is known
as future-flows securitization.

PROCESS OF SECURITIZATION:
A typical securitization transaction consists of the following steps:
1. creation of a special purpose vehicle to hold the financial assets
underlying the securities;
2. sale of the financial assets by the originator or holder of the
assets to the special purpose vehicle, which will hold the assets
and realize the assets;
3. issuance of securities by the SPV, to investors, against the
financial assets held by it.
This process leads to the financial asset being take off the
balance sheet of the originator, thereby relieving pressures of
capital adequacy, and provides immediate liquidity to the
originator.

SECURITIZATION IN INDIA

Securitization in India began in the early nineties,

with CRISIL rating the first securitization program in
1991-92.

Through most of the 90s, securitization of auto loans

was the mainstay of the Indian markets.

But since 2000, Residential Mortgage Backed

Securities (RMBS) have fuelled the growth of the
market.

CURRENT SCENARIO:
In 2004-05, the Mortgaged Backed Securities market grew
moderately at 13% with the issuance valued at Rs. 33.4
billion.
In 2005, the market for Structured Finance (SF) grew by
121% in terms of value and 41% in the number of
transactions, while the ABS market doubled from Rs. 80.9
billion to Rs. 222.9 billion in 2004. ABS was the largest
product class, accounting for 72% of the SF market in 2005.
This was three times higher than the volume of Rs. 81 billion
in 2003.

BENEFITS OF SECURITIZATION:
Benefits

to originator.

Benefits

to investor.

Benefits

to Financial system.

OBSTACLES AND POLICY

RECOMMENDATIONS
1.

Lack of appropriate legislation.

2.

Taxation and accounting.

3.

Lack of investor appetite.

4.

Tax neutral bankruptcy remote SPE.

Some companies involved in

securitization in India :
Ashok

Leyland finance.
TATA finance.
SRF finance.
Cholamandalam investment and finance.
Esanda finance.

CONCLUSION

The new RBI guidelines seek to provide healthy and

uniform directions for regulating securitization activities.
While these guidelines and the enhanced enforcement
rights provided to Securitization Companies under the Act
will provide an impetus to securitization in India, many
legal impediments remain.