Dr.B. JOHNSON, Reader, F.M.N.COLLEGE, KOLLAM

What is securitization A mechanism of pooling of illiquid assets for converting them into tradable securities. Illiquid receivables are transformed into liquid assets. It restructures the balance sheet. Securitization serves as a very powerful tool of financial re-engineering

ASSETS FOR SECURITIZATION

Must have homogeneity with regard to three risks

CreditMaturityInterest rate

Residential mortgages, Commercial and multi -family mortgages, Home loans, Automobile loans, Student loans, Credit card receivables,Boat loans, Warehouse loans etc

PIONEERS OF SECURITIZATION IN THE WORLDUSA, UK, FRANCE, AUSTRALIA, BRAZIL,

CANADA, HONGKONG, NETHERLANDS, JAPAN, GERMANY, MEXICO etc.

THE FIRST ASSET SECURITIZED WAS AUTOMOBILE LOANS

% SHARE OF ASSETS SECURITIZED IN THE US IN2004

SECURITIZATION PROCESSCredit rating of the receivablesOriginator sell the assets to the SPVSPV gives money to the originator and issues tradable securities to fund the purchase of assets , directly to the investors or underwriters

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OPERATORS OF SECURITIZATION

THE ORIGINATOR/SELLER/SERVICER

SPV-SPECIAL PURPOSE VEHICLE/ISSUER/TRUST

INVESTORS

CREDIT RATING AGENCIES

TYPES OF SECURI……IN INDIA

ASSET BACKED SECURITIES(ABS)

MORTGAGE BACKED SECURITIES(MBS)

COLLATERALISED DEBT OBLIGATIONS(CDO)

ASSET BACKED COMMERCIAL PAPER(ABCP)

ISSUES OF SECURITIZATION

Heavy stamp duty

Documentation

Absence of proper taxation and accounting procedure

Lack of appropriate legislation

CHALLENGESRATIONALISE STAMP DUTIES

SIMPLIFY THE DOCUMENTATION PROCESS

FORMULATE ADEQUATE LEGISLATION

IMPART THE AWARENESS AMONG THE CORPORATES