The Lok Sabha on Monday passed a crucial legislation which seeks to develop India’s securitisation market by facilitating listing and trading of securitised certificates or instruments on stock exchanges.
The Securities Contract (Regulation) Amendment Bill, 2007, to amend the Securities Contracts (Regulation) Act, 1956, was passed by a voice vote without discussion. This will allow banks and financial institutions to keep these securitised loans off their balance-sheet, thus reducing the need for additional capital along with giving them an alternative form of funding risk transfer, a new investor base and potential capital relief.
Securitisation is a form of financing, involving pooling of financial assets and the issuance of securities that are re-paid from the cash flows generated by the assets. This is generally accomplished by actual sale of the assets to a bankruptcy-remote vehicle, that is, a special purpose vehicle, which finances the purchase through the issuance of bonds. These bonds are backed by future cash flow of the asset pool. The assets for securitisation transactions include mortgages, credit cards, auto and consumer loans, student loans, corporate debt, export receivables and off-shore remittances.
Read more in The Economic Times article.
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