Page 24 - Banking Finance April 2021

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

24 | 2021 | APRIL | BANKING FINANCE