Group 9

SECURITISATION
Presented by:
Jasmine Kaur - BCH/22/125
Trishna Choudhary - BCH/22/128
Aayushi Gupta - BCH/22/131
 INTRODUCTION TO SECURITISATION

What is Securitisation? Why is Securitisation Important?

Securitisation is a process Securitisation plays a key role in

where financial assets like modern finance by enhancing
loans are bundled together liquidity, enabling risk transfer,
and sold to investors as and providing investors with
securities. This helps the diversified investment options.
lender (like a bank or NBFC) to
get back its money quickly
and use it again for more
lending.
HOW DOES SECURITISATION WORK?
 NEED FOR SECURITISATION

Securitisation was developed to improve liquidity in the financial system and

to allow lenders to remove assets from their balance sheets, thereby freeing
up capital for fresh lending.
 SECURITISATION: HISTORICAL PERSPECTIVE

Global Evolution Indian Timeline

The concept of securitisation 1991: First securitisation deal by

originated in the USA during the Citibank (auto loans).
1970s.
2000s: Growth phase with housing
The first major instrument was the finance and NBFC participation.
Mortgage-Backed Security (MBS)
issued by Government National 2006: RBI issued detailed
Mortgage Association (Ginnie Mae). guidelines on securitisation of
standard assets
By the 1980s, securitisation
expanded to auto loans, credit card 2021 onwards: Focus on
receivables, and student loans. infrastructure and affordable
housing securitisation.
PARTICIPANTS IN THE SECURITISATION PROCESS
 MECHANISM OF SECURITISATION

Asset Pooling Transfer to SPV Issuance of Securities

Originator selects a Assets are sold to an SPV issues securities

pool of receivables. SPV through a true sale. backed by these
receivables.

Servicing Sale to Investors

Servicer collects payments Securities are sold to investors

and passes them on. who receive periodic payments
from the asset cash flows.
 TYPES OF SECURITISATION

Mortgage Backed Securities Asset Backed Securities

Backed by home loans or Backed by non-mortgage

mortgages. assets like auto loans,
credit card dues, or
Lender pools mortgage personal loans.
loans and sells them to an Shorter maturity and
SPV. potentially higher risk than
MBS.
SPV issues securities; SPV issues securities;
investors receive EMIs investors earn from
from borrowers. repayments on these
assets.
Typically long-term, Commonly used by NBFCs
lower-risk due to property to improve liquidity.
backing.
 BENEFITS OF
SECURITISATION
For the Investors:

For the Originator: 4. Reduced Risk & Diversified Options:

Securities are credit-rated and structured in
1. Off-Balance-Sheet Financing: tranches, suiting varied risk appetites.
Frees up assets from the balance sheet,
enhancing liquidity and financial ratios. 5. Bankruptcy Protection :
Investors are insulated from originator's
2. Upfront Profit Recognition: bankruptcy risk, as flows depend on asset
Enables the originator to book profits performance.
immediately upon asset transfer. For the Economy:

3. Focus on Core Operations: .6. *Boosts Market Efficiency & Fund Access*
Originators can focus on lending while Mobilizes receivables into investable
servicing is outsourced. instruments, supporting development projects
and expanding financial market depth.
 1. High Stamp Duty:

PROBLEMS Varies across states, making securitisation costly in some regions.

This discourages widespread adoption and reduces transaction efficiency.

IN 2. Legal and Regulatory Hurdles:

SECURIT Laws like the Transfer of Property Act make asset transfer complex.
It often requires physical documentation and lengthy legal processes.

ISATION 3. Taxation Issues:

Multiple taxes on income and capital gains reduce investor returns.
Lack of tax clarity also makes it less attractive for potential investors.

4. Accounting Ambiguity:
No clear norms on how to treat securitised assets on books.
This leads to inconsistent practices and potential misstatements in reporting.

5. Non-standardized Loan Procedures:

Inconsistent documentation formats across institutions cause delays.
This reduces scalability and hampers smooth execution of deals.

6. Weak Foreclosure Laws (Initially):

Ineffective debt recovery laws hindered asset-backed funding growth. Reforms like
the SARFAESI Act were needed to boost confidence.
 REGULATORY FRAMEWORK

The regulatory framework for securitisation in India was

shaped by key developments like the SARFAESI Act, which
enabled banks and financial institutions to offload NPAs to
Asset Reconstruction Companies (ARCs), who in turn issue
Security Receipts (SRs). The Patil Committee further
encouraged securitisation in the corporate debt market.
Recommendations included reducing stamp duty,
exempting TDS on investor returns, and recognizing
securitised instruments under the Securities Contracts
Regulation Act (SCRA). Guidelines from RBI (2006) and
SEBI (2008) formalized processes for standard asset
securitisation and public listing, while also allowing
broader investor participation through Qualified
Institutional Buyers (QIBs).
[Link] Act:
Enabled securitisation of NPAs by allowing banks and FIs to
transfer them to ARCs, who issue Security Receipts (SRs).

[Link] Committee Recommendations:

Focused on promoting corporate debt market and
strengthening securitisation practices in India.

[Link] Duty & Tax Relief:

Recommendations include affordable stamp duty and
exemption of TDS on interest paid to investors.

[Link] under SCRA:

PTCs and SRs are classified as ‘securities’ for better
regulatory oversight and market inclusion.

[Link] and RBI Guidelines:

RBI issued guidelines in 2006 on standard assets; SEBI
enabled listing of securitised papers on stock exchanges.

[Link] Flexibility:
SEBI permits NBFCs and QIBs to invest in securitised
instruments, boosting investor participation.
 RISK ASSESSMENT IN SECURITISATION
Securitisation involves complex financial transactions, and credit risk assessment plays a key role in
determining the reliability of these transactions. Investors rely heavily on credit ratings of securitised
instruments. These ratings are provided by credit rating agencies and differ from traditional credit rating
because they assess structured finance instruments rather than individual entities

Key Aspects of Risk Assessment:

-Credit rating agencie sevaluate the structure of the
transaction, the legal and operational frameworks, and cash
flow generation capacity.
- The rating reflects a desired level of credit enhancement—a
cushion for investors in case the underlying borrowers
default.
- If the required enhancement is not possible, the transaction
may be dropped.
- Agencies assess risks linked to collateral, legal, structural,
and third-party involvement.
DOCUMENTATION IN SECURITISATION
Legal documentation in securitisation is crucial for:

- Verifying the appropriateness and legal adequacy.

- Ensuring credit rating agencies can validate compliance.

Key Documents in the Securitisation Process:

1. Deed of Assignment:
Transfers the receivables as per the transaction's terms and conditions.
2. Trust Deed:
Creates the Special Purpose Vehicle (SPV).
3. Credit Support Agreement / Cash Collateral Agreement:
Used for credit enhancement.
4. Power of Attorney:
Issued by the originator in favor of the administrator or successor.
5. RPA Agreement (Receivables Purchase Agreement).
6. Administrator Agreement
 SECURITISATION - GLOBAL SCANERIO
Global Adoption

Dominant method of capital formation in major regions:

➤ US, Canada, Europe, Latin America, Southeast Asia

US
Canada
Europe
Latin America
South East Asia
 SECURITISATION - GLOBAL SCANERIO
Post-2008 Recovery 📌 After the 2008 financial crisis, the market saw a resurgence.

Market Trends (2014)

ABS (Asset-Backed Securities) grew by 17.9% vs. 2013.
MBS (Mortgage-Backed Securities) declined by -16.7%.
US ABS market reached $311.9 billion from 585
transactions —
👉 Highest since 2007.
👉 15.3% increase from the previous year.

Sector Breakdown in US ABS

📘 CDOs (Collateralised Debt Obligations) – 35%

Largest share of the US ABS market
🚗 Auto Loans – 32%
Driven by strong car loan demand
💳 Others (33%)
EVOLUTION & STRUCTURE OF
SECURITISATION IN INDIA
Evolution of the Market

Introduced in early 1990s

Gained traction post-RBI 2006 guidelines
Shift from Direct Assignments (with recourse) to True Sale via SPVs
Adoption of trust structure – SPVs issue PTCs/PTS

Key Characteristics

Strong regulatory framework

No subprime loan securitisation (unlike US crisis)
Instruments are simpler and less risky
CRISIL downgrade rate only 2% (2007–08)

Major Originators and Investors

Originators: Private banks, NBFCs, HFCs

Investors: Foreign banks, Mutual Funds, Insurance Cos.,
HNIs, PE Firms
MARKET TRENDS, GROWTH & ASSET
CLASSES
📊 Growth & Trends
FY2014: Volume grew by 29% to ₹49,000 crore
FY2016: Jumped 45% to ₹25,000 crore
Growth driven by ABS, decline seen in RMBS

📌 Key Asset Classes

Auto Loans (ABS)
Microfinance Loans (ABS) – Zero delinquency in
many cases
Residential Mortgages (RMBS) – High collection
efficiency
Commercial Loans & Construction Equipment
Loans

📌 Supporting Reforms
Credit derivative norms
NPA rating guidelines
Union Budget 2016: FPIs allowed to invest in
PTCs → broadened investor base
 CASE STUDY – BANDHAN BANK:
SECURITISATION FOR FINANCIAL INCLUSION
Background

India had 1.7B unbanked adults (World Bank, 2017).

Bandhan began as a Microfinance Institution (MFI), targeting low-
income segments, especially women.
IFC (World Bank Group) invested $29M in 2011, later totaling
$115M in equity and $26M in debt to support Bandhan’s
transformation into a full-service ban
6M ➡️ 13M $1.3B ➡️ $4.5B
ROE consistently
above 20%

Role of Securitisation

Bandhan securitised its micro-loan portfolio to raise capital

via SPVs, enabling:
13,200 ➡️ 28,826 4,177 (branches
$70M ➡️ $207M Lending expansion without overleveraging
+ DSCs + ATMs)
Access to cheaper funds by selling future cash flows
Compliance with Priority Sector Lending (PSL) targets
 TECHNOLOGY IN SECURITISATION – THE
FINTECH ANGLE

Blockchain for Asset Tracking

Real-time, tamper-proof IMPACT

ownership records Faster, transparent
Enhances transparency and securitisation
reduces fraud Better access to capital AI in Credit Assessment
Smart contracts automate for underserved
payments Boosts investor
confidence Uses alternative data for credit
Example: Used by JP Morgan, scoring
Santander Improves risk modeling and
pricing
Flags early default risks
Example: Used by Upstart, Zest
AI
 CONCLUSION

Securitisation enables liquidity creation, credit risk transfer,

and deeper capital markets
Plays a vital role in expanding credit to underserved and
priority sectors in India
Technology such as AI and Blockchain is enhancing
transparency, credit evaluation, and operational efficiency
With private capital participation and fintech integration,
securitisation is poised to drive inclusive financial growth in
India
THANK
YOU