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BFSI Chronicle, 11 Edition September 2022
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Securitising his Loan Portfolio, but at a discounted securities which can be repaid from the Cash Flows
value to the actual due amount. However, these generated by the Assets. This is generally done
proceeds can be used by lenders for the disbursal through an actual sale of assets to a Special Purpose
of fresh loans. Vehicle (SPV) like Asset Reconstruction Companies
and they finance the purchase through the issue of
Securitisation is a form of financing which involves Bonds. These Bonds are backed by the future Cash
the pooling of financial assets and the issuance of Flow of the Asset Pool.
The most common Assets which can be securi-
tised are:
Mortgages.
Credit Cards.
Auto and Consumer Loans.
Student Loans.
Corporate Debt.
Export Receivables.
Off shore Remittances etc.
Securitisation is done through Special Purpose Pay Through Certifi cates.
Vehicles (SPVs). These are termed Asset
Reconstruction Companies (ARCs) in the present Through the SPVs and with a provision of
SARFAESI Act. distributing the inflow of cash from recoveries on a
pro-rata basis to the coupon holders.
Thus, Securitisation is a process through which
Illiquid Assets are transferred into a more Liquid In the process of Securitisation, the original lender’s
form and are distributed to a broad range of long-term illiquid assets get converted into Current
investors through Capital Markets. These assets Assets.
are removed from the Balance Sheet of the lending
institutions and are instead funded through a Securitisation With or Without Recourse:
Negotiable Financial Instrument by the investors. Securitisation can be done with or without recourse
These security/bonds are Backed by the expected to the Original Lender. In the ‘Without Recourse’
Cash Flows from the Assets. securitisation, if the receivables from the borrower
are not recovered, the ‘Asset Reconstruction
Securitisation is a process under which a pool of Company’ and/or investors face the loss as the
Individual Homogeneous Loans is packaged and amount cannot be recovered from the original
distributed to various investors having liquid funds lender. In the case of ‘With Recourse’ securitisation,
in the form of: the Asset Reconstruction Company / Investors can
recover the Principal and Interest from the original
Coupons / Pass Through or lending institution in case the borrower fails to
repay the instalments.
The Institute Of Cost Accountants Of India
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