Page 29 - Banking Finance February 2022

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being in 1970. Firstly it was backed by mortgage loans, the Since mortgages back these securities, they are also
securities issued by it were called "Mortgage pass through called "mortgage-backed securities."
securities". In 1985, non-mortgage collaterals started Sale of the loan by the lender to the Issuer/SPV who
getting securitized in U.S.A. Securitization then gained then sells securities to Investors.
popularity in UK, like America the concept was firstly backed
by mortgage. Securitization of debt and the consequent Servicing Agent collects the payments from Borrowers
debt instruments then became popular in countries like & distributes them to the Issuer/SPV for payment to
investors.
Italy, Australia, Canada, Japan, France, etc.
After sale of assets to the Issuer/SPV, the lender has no
Securitization in India: power to restructure the loan or make other
accommodations for its borrower.
In India the concept of securitization was pioneered by Citi
bank. The first attempt was securitization of ICICI's That becomes the responsibility of Servicing Agent, if
receivables by Citibank in Feb. 1991. The Hire purchase the borrower defaults, action is taken by the Servicing
portfolio of TELCO was securitized by Citi bank & a sum of Agent to recover cash for payment to investors. It is
Rs. 15 crores was raised. HDFC followed the path done as per the conditions mentioned in securitization
&securitized its housing loan portfolio through Citibank. documents
Other commercial banks entered into Securitization to Securities issued by SPV in securitization transaction are
remove their non-performing assets from their balance mostly Mortgage Backed (MBS), wherein the lender has
sheet. But in India it was not firmly rooted because of the right to sell the property, if the borrower defaults.
following points: The most common example of MBS is "securities backed
New Concept by mortgage/ housing loans".
Heavy Stamp Duty True sale of financial assets (or a pool of such assets) in
Cumbersome Transfer Procedure return for immediate cash payment.
Difficulty in Assignment of Debt Under the true sale mechanism, the assets move from
the balance sheet of the originator to the balance sheet
Absence of Standardized loan Documentation
of a special purpose vehicle ("SPV") or ARC.
Inadequate Credit Rating System
The assets are pooled, sub-divided, repackaged as
Absence of Proper Accounting Systems tradable securities backed by such pooled assets.
Absence of Guidelines Tradable securities are sold to investors either as pass

How the bank or other FIs securitize an

asset?
There are five stages/process involved in the working of
Securitization which can be explained as under:
Identification stage
Transfer stage

Issue stage
Credit Rating stage
Redemption stage
First, a bank or financial institution collects thousands
of mortgages into a "pool." Then, it divides those pool
into small parts and sells them as securities. Buyers of
these securities, get the right to the interest or
mortgage payments by the home owners/Borrowers.

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