Page 30 - Banking Finance February 2022

ARTICLE

through certificates ("PTCs") or security receipts ("SRs"),
which represent claims on incoming cash flows from
such pooled assets.

Parties Involved in Securitisation Process

The originator/LENDER
The original borrowers
A Special Purpose Vehicle (SPV) or trust
A merchant or investment banker
A credit rating agency

A servicing agent-Receiving &Paying agent (RPA)
The prospective investors i.e. the buyer of securities.
Representations and warranties
Roles and responsibilities of Parties to Loss mitigation strategies in event of loan default.
securitization Underwriting - Administers the issuance of the securities

LENDER: - Lenders can be banks or non-banks. to investors.
BORROWER: - An Individual or organization which Credit Enhancement - Designed to decrease the credit
obtains loan. risk of the structure provided by an independent third
party in the form of letters of credit or guarantees
MORTGAGE BROKER: - Facilitator between a borrower
and the lender.
How does Securitization Help?
ISSUER/ (SPV) SPECIAL PURPOSE VEHICLE: Facilitating
securitization and issuing securities to investors. Banks/FIs use securitization to raise more funds so that they
can give more loans. Investors, who invest in these securities
SERVICING AGENTS: - Collecting loan payments from
can diversify their portfolio and earn quality returns as well.
borrowers and remitting to the ISSUER/SPV for However it has no effect on the borrower, whose mortgage
distribution to the investors.
has been pooled. All the terms agreed between the lender
TRUSTEE: - A third party appointed to represent the and the borrower at the time of taking the loan remain
investors' interests & ensure that the securitization intact. A possible change could be that the borrower may
operates as per the securitization documents. be asked to repay their loan instalments/EMI to a different
UNDERWRITER: - Administers the issuance of the address.
securities to investors.
Regulation of Securitisation in India:
CREDIT ENHANCEMENT PROVIDER: - An independent
third party who provides Credit enhancement (decrease Securitisation and Reconstruction of Financial Assets and
the credit risk of the structure) by providing letters of Enforcement of Security Interest Act, 2002 ("SARFAESI
credit or guarantees. Act") regulates securitization of stressed financial assets
(NPA).
Securitization Documents: "RBI Guidelines" of 2006 regulate securitisation of
The documents create the securitization and specify how it standard assets by Banks, NBFCs and other FIs.
operates.
Indian Stamp Act regulates stamp duty applicable to
Pooling and Servicing Agreement (PSA), which is a
various securitisation and assignment transactions. A
contract that defines: 2016 amendment to the SARFAESI Act exempted stamp
How loans are combined in a securitization
duty for securitizing or assigning non-performing assets
The administration and servicing of the loans (NPA) in favour of ARCs.

30 | 2022 | FEBRUARY | BANKING FINANCE