Securitization: The Indian Experience

Abstract

A wide variety of financial markets have been characterized by the growth in securitization during the past twenty years as numerous advantages accrue from holding financial assets in securitized rather than whole loan form.

Over the last decade securitization has migrated from the United Sates into Europe and the rest of the world and taken a permanent hold on the fixed income market.

Securitisation refers to conversion of cash flows into marketable securities. It is a process through which illiquid assets are packaged, converted into tradable securities and sold to third party investors.

Securitisation has arrived in a developing country like India much faster than expected. Securitization may help Indian Banks reduce their regulatory, and sometimes economic and capital requirements.

While Securitization serves as a powerful tool of financial reengineering, striking a securitization deal is not that simple. It involves substantial costs, complexity and a longer time period to complete it.

Keywords: Securitization, India, SPV, Risk

JEL Classification: G12, G21