securitization of debt13 may
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Contents
What is securitization?
Definition
Structured Securities Vs ConventionalSecurities
Securitization Vs Factoring
Stages Of Securitization
Structure for Securitization / Types Of
Securities
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Other contents
Securitisable assets
Benefits Of Securitization
Securitization And Banks Conditions For Successful Securitization
Securitization in Abroad and in India
Causes For Unpopularity Of Securitizationin India
Future Prospects
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What is securitization?
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Securities
Cash
Assets
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Definition
Henderson , J. and Scott, J. P, Securitization is theprocess which takes when a lending institutionsassets are removed in one way or another from thebalance sheet of that lending institution and are
funded instead, by investors who purchase anegotiable financial instrument evidencing thisindebtedness without recourse, or in some caseswith limited recourse, to the original lender.
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Why Securitisation?
1. A convenient mechanism to suit changingneeds of borrowers and lenders
2. Matches supply of funds with demanddemands for funds through floatingnegotiable securities
3. Shifts the source of repayment from earning
to a pool of assets
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Parties to securitizations
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Stages Of Securitization
Identification
Transfer
Issue
Redemption
Credit Rating
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Structured Securities Vs Conventional
Securities
Sources Of Repayment
Structure
Nature
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Securitization Vs Factoring
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Structure for Securitization
Types Of Securities Pass through and Pay through Certificates,
Preferred stock certificates ,
Assets based commercial papers.
Other Types
Interest only certificates ,
Principal only certificates.
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Continue..
Pass Through Certificates:
Sale of asset to SPV
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Securitisable Assets Term loan finance
Credit card receivables
Car loan
Mortgage loans
Lease finance
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Benefits Of Securitization
1. Additional Source Of Fund
2. Greater Profitability
3. Enhancement Of Capital Adequacy Ratio
4. Spreading Of Credit Risk5. Lower Cost Of Funding
6. Provision OfMultiple Instruments
7. Higher Rate Of Return
8. Prevention of Idle Capital9. Better than Traditional Investment
10.Other Benefits
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Securitization And Banks
Innovative and Low Cost Source Of Funds
Better Capital Adequacy Norms
Creation OfMore Credit
Increased Profitability
Tools For Asset-liability Management and Risk
Management
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Conditions For Successful
Securitization Ability of the original borrower
Credit rating
Separate entity
Listing of stock exchange
Two way quotation
Uniformity
Accounting norms
guidelines
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Threats to Securitization
i. New Concept
ii. Heavy Stamp duty and Registration Fees
iii. Cumbersome Transfer Procedures
iv. Difficulty in Assignment of Debt
v. Absence of Standardized Loan Documentation
vi. Inadequate Credit Rating Facilitiesvii. Absence of Proper Accounting Procedures
viii.Absence of Proper Guidelines