Page 25 - Banking Finance April 2021

ARTICLE

which represent claims on incoming cash flows from
such pooled assets.

Parties Involved in Securitization
Process:

Y The originator/lender
Y The original borrowers
Y A Special Purpose Vehicle (SPV) or trust
Y A merchant or investment banker

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

Securitization: Y Credit Enhancement: Designed to decrease the credit
Y Lender: Lenders can be banks or non-banks. risk of the structure provided by an independent third
party in the form of letters of credit or guarantees.
Y Borrower: An Individual or organization which obtains
loan.
How Does Securitization Help?
Y Mortgage Broker: Facilitator between a borrower and
the lender. Banks/FIs use securitization to raise more funds so that they
can give more loans. Investors, who invest in these securities
Y Issuer/Special Purpose Vehicle: Facilitating can diversify their portfolio and earn quality returns as well.
securitization and issuing securities to investors. However it has no effect on the borrower, whose mortgage
Y Servicing Agents: Collecting loan payments from has been pooled. All the terms agreed between the lender
borrowers and remitting to the ISSUER/SPV for and the borrower at the time of taking the loan remains
distribution to the investors. intact. A possible change could be that the borrower may
be asked to repay their loan installments/EMI to a different
Y Trustee: A third party appointed to represent the
investors' interests & ensures that the securitization address.
operates as per the securitization documents.
Regulation of Securitization in India:
Y Underwriter: Administers the issuance of the securities
to investors. Y Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
Y Credit Enhancement Provider: An independent third (SARFAESI Act) regulates securitization of stressed
party who provides credit enhancement (decrease the
financial assets (NPA).
credit risk of the structure) by providing letters of credit
or guarantees. Y "RBI Guidelines" of 2006 regulate securitization of
standard assets by Banks, NBFCs and other FIs.
Securitization Documents: Y Indian Stamp Act regulates stamp duty applicable to
The documents create the securitization and specify how it various securitization and assignment transactions. A
operates. 2016 amendment to the SARFAESI Act exempted stamp
Y Pooling and Servicing Agreement (PSA), which is a duty for securitizing or assigning non-performing assets
contract that defines: (NPA) in favour of ARCs.
How loans are combined in a securitization
Y 2012 Revisions of RBI Guidelines, Mandating MRR &
The administration and servicing of the loans MHP Banks, NBFCs and other FIs securitizing their

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