Securitisation is the process of issuing debt instruments to raise funds against tangible assets capable of generating future cash flows. The project covers securitisation, asset reconstruction and enforcement of security interest and consists of four modules as under:
Module: 1 - Securitisation & Reconstruction of Financial Assets (5 articles)
Securitisation as a form of funding (raising money by selling future revenue streams) is widely prevalent in western countries. These bonds are commonly traded in the secondary debt market as bearer bonds. The popularity of securitised bonds is on account of distinct advantages it provides to the different parties associated with it. From the perspective of the company that securitises its cash flows, the major benefits are in terms of getting immediate cash and passing the risk to the investors. Besides, for finance companies, securitisation would take the loan assets off the balance sheet, thereby relieving pressures of capital adequacy. For the investor it is a tradable security favourably rated by a Credit Rating Agency. Further, the company that wants to securitise can ask for a particular rating from a rating company and get it, by a mechanism called `credit enhancement'. This refers to shoring up investors' confidence by offering cash collateral to the SPV (Special Purpose Vehicle i.e. the agency that attends to securitisation of assets)
"Asset Reconstruction" is defined as acquisition by Company of any right or interest of a bank or financial institution in respect of a financial assistance for the purpose of realisation of such financial assistance. In other words the company handles debt collection on behalf the banks and financial institutions. Two of the East Asian Countries, i.e. Malaysia and Thailand set up ARCs to tackle problem of NPA in their respective countries.
The module explains the two concepts i.e. securitisation & assets reconstructions and about the role of the respective companies SC/ARC in India before the onset of the Ordinance in 2002.
Module: 2 - Securitisation of Assets - As In Vogue in Western Countries (4 articles)
The module explains and structure and working of Securitisation Companies in Western Countries, where the concept has gained wide popularity.
Module: 3 - Securitisation of Assets - Ordinance of 2002 (8 articles)
The government during June 2002 promulgated the "The Securitisation And Reconstruction of Financial Assets And Enforcement Of Security Interest Ordinance, 2002" for setting up asset reconstruction companies and for securitisation by these companies of NPAs of banks/FIs taken over by them. The measure is intended to facilitate banks and financial institutions to utilise the services of ARCs/SCs for speedily recovering dues from defaulters and to reduce their non-performing assets, now estimated at over Rs.70,000 Crores. The Ordinance contains provisions that would make it possible for ARCs/SCs to directly take possession of the secured assets and/or the management of the defaulting borrower companies without having to resort to time consuming process of litigation and without allowing borrowers to take shelter under provisions of SICA/BIFR. The ordinance is based on the suggestions of Narasimham and Andhyarujina committees.
The module explains in details the different provisions of the ordinance on subjects relating to Asset reconstruction, enforcement of security interest and securitisation of assets.
Module: 4 - ARC Legislation of 2002 - From Ordinance to Act (7 articles, the 2nd article covering 5 parts - Total 11)
The Ordinance of 2002 is now become a regular Act passed by the Parliament. Further RBI has issued detailed guidelines to the Banks and Securitisation/Asset reconstruction companies clarifying the working procedures amplifying the provisions of the Act. This module provides these details.
