##uritisation ( abs ) is the largest securitisation class in india, driven by retail loan portfolio of banks. nbfcs like the asset finance companies ( afc ) operating in the sme and transport financing segments and micro finance institutions ( mfi ) are very active as originators. though the market had begun since the year 2000, the gfc obviously has its repercussions in indian market as well. it is reported that the indian securitisation market which reached a high of ₹ 63, 730 crore by march 2008 dwindled down to ₹ 28, 800 crore in by march 2014. 22. the micro finance companies play a larger role mainly due to their psl underlying pools. another positive development witnessed in recent years is the preference for multiple tranche products as against single tranche structures. another encouraging factor is the preference for the lower rated senior tranches by the investors. it is reported that during the financial year 2014, the number of aaa ratings at initiation dropped from 45 % in 2012 to 26 %. 23. insurance, pension and mutual funds can play an important role in the indian securitisation market as they can invest long term and at the same time have the risk appetite, capacity and expertise for taking exposures to the lower tranches. however, the pension funds are not allowed to invest in securitisation ptcs and insurance companies are allowed to invest in high investment grade aaa securities only. mfs are still hesitant to invest in the securitised papers due to past pending court cases as well as lack of clarity on the tax implications for their investments. in the finance bill 2013, mutual funds were exempted from application of the distribution tax imposed on securitisation spv ’ s. low appetite for securitisation in indian financial market 24. the appetite for securitisation in india has been on the lower side ; it is used largely to meet priority sector lending targets by banks as investors, nbfcs being the originators. this low appetite can be ascribed to several factors, including legal, taxation and stamp duty issues. 25. recently, we undertook an informal and quick survey of the securitisation market in india. the primary objective was to assess the issues facing the market along with the reasons for poor take off in securitisation as a risk transfer and liquidity enhancing product. the sample survey included originators, investors, third party liquidity and credit enhancement providers, servicers

r gandhi : securitisation in india – ambling down or revving up? inaugural speech by mr r gandhi, deputy governor of the reserve bank of india, at the “ india securitisation summit 2015 ”, organized by the national institute of securities markets ( nism ), mumbai, 14 july 2015. * * * assistance provided by ms. anupam sonal is gratefully acknowledged. 1. financial sector ’ s primary role is intermediation between ultimate savers and ultimate investors. initially, it was banks which were the intermediaries. as the financial sector evolved, other types of financial institutions came on the scene to undertake such intermediation directly, or between and among other intermediaries. a parallel development is the emergence of varieties of financial products, far removed from simple deposits and advances, delivering such intermediation. securitisation, as we all know, is among the latest of such intermediating product. securitisation – definition 2. securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations ( or other non - debt assets which generate receivables ) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass - through securities, or collateralized debt obligations ( cdos ). securitisation diversifies credit markets as it breaks the process of lending and funding into several discrete steps, leading to specialisation and economies of scale. 3. securitisation actually has two major stages. in the first stage there is sale of single asset or pooling and sale of pool of assets by the owner of the assets ( “ originator ” ) to a “ bankruptcy remote ” special purpose vehicle ( “ spv ” ) in return for an immediate cash payment, and in the second stage repackaging and / or selling of the security interests representing claims on incoming cash flows from the asset or pool of assets to third party investors by issuance of tradable debt securities. 4. thus in a nutshell, securitisation is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. advantages of securitisation 5. securitisation can offer a number of advantages for the stakeholders. some of the benefits of the traditional vanilla securitisation products are as