This judgment was sent to us by Mr. Sanjay Jain, one of our clients from Nagpur. The said judgment has been reproduced in full below.
Securitization benefits the economy as a whole by bringing financial markets and capital markets together. Financial assets are created in the financial markets, e.
These assets are traditionally refinanced on on-balance sheet means of funding of the respective banks. Securitisation connects the capital markets and financial markets by converting these financial assets into capital market commodities. The agency and intermediation costs are thereby reduced.
Does securitization increase risk of the economic system? The benefits of securitization are, however, not unquestionable. Securitization converts loan relationships into capital market commodities and therefore, increases the power of the capital market.
Debate on the potential risks of the capital market-financial market connectivity was initiated or carried forward by Prof Henry Kaufman. It tends to sustain borrowers longer in economic expansion and probably to expose them more in contractions.
It also has had the important side effect of removing the illusion of price stability for nonmarketable assets. Some of the new securitized instruments have therefore magnified the volatility of finan-cial asset prices.
If securitization means lesser credit risks for the originator, obviously this should lead to lower funding costs. The best instance of this is the US mortgage markes, where the agencies Ginnie Mae, Fannie Mae and Freddie Mac have contributed to bring down the mortgage costs.
Studies that have gone into cost of mortgage funding and securitization include the following: Credit Scoring and Mortgage Securitization: Implications for Mortgage Rates and Credit Availability December 21, Andrea Heuson — click here Benefits to originators Strategic issues to be considered by an originator: A presentation by Barclays Bank on strategic uses of securitization — click here Use of securitization as an alternative funding tool by corporates — article by Ganesh Rajendra of Deutsche Bank Benefits to investors Investor experience of investing in securitised paper has internationally been quite good, for primarily 3 reasons: Securitisation being a structured finance instrument can be more closely aligned to investor needs.
Investors can invest in exactly what suits their investment policy the best. Securitisation asset classes have shown much higher rating resilience.
Recently, Fitch also came out with a rating transition history of ABS to prove this point. Default history of securitization tranches is much safer — there have been very few defaults over the past 16 years.
Default recovery rate of securitisation tranches has been significantly higher than in case of defaulted corporate bonds.Securitization is the procedure whereby an issuer designs a financial instrument by merging various financial assets and then markets tiers of the repackaged instruments to investors.
Financial Glossary: The Most Comprehensive Investing Glossary on the Web. Financial, Stock/Share Market, Personal Finance and Investing Definitions and F&Q. Reconstruction of Financial Assets and Enforcement of Security Interest Act, read with Security Interest (Enforcement) Rules, (hereinafter referred to as "the SARFAESI Act") is selling the assets/properties mentioned at item No.
III of the Tender Document (hereinafter referred. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, is a legislation that helps financial institutions to ensure asset quality in .
Late breaking news: 4th Dec., At a Forum on Alternative Risk Transfer, insurance was propounded as a source of contingent capital and as a building block of the capital structure of a company – click here for a report.
Late breaking news. Dec 15, · Non-banking financial companies ("NBFC") have undergone significant transformation over the past few years. Liberalisation of the legal regime, increasing digitisation and rising financial inclusion have given a boost to innovation, growth and investment in the financial sector.