a funding source – was limited. nevertheless, securitisation of retail loans, both abs and rmbs reported a 61 per cent increase in volume in 2009 – 10. 16. while the securitisation market has remained concentrated with a handful of originators and limited investors, the asset classes have continued to diversify, the latest additions being gold loans, microfinance loan receivables and loan against property. trends in structured finance volumes ( rs. billion ) type 2001 – 02 2002 – 03 2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 abs 12. 9 36. 4 80. 9 222. 9 178. 5 234. 2 313. 2 135. 8 209. 7 mbs 0. 8 14. 8 29. 6 33. 4 50. 1 16. 1 5. 9 32. 9 62. 5 cdo / lso / slsd 19. 1 24. 3 28. 3 25. 8 21. 0 119. 0 318. 2 364. 4 145. 8 others 2. 3 0. 5 – – 11. 6 7. 9 total 36. 8 77. 8 139. 3 308. 1 249. 6 369. 3 650. 3 544. 7 425. 9 ( cdo : corporate debt obligations, lso : loan sell off, slso : single loan sell - down ) source : various rating agencies like icra, crisil etc. rbi guidelines 17. rbi had issued comprehensive guidelines on securitization in february 2006 based on international best practices. the main focus of the guidelines was to encourage securitization in manner that ensures true sale - real risk transfer and banks do not retain risks in the transferred assets beyond a point. to this end, limit was placed on banks ’ exposure to ptcs and concentration of entire credit enhancement in the originating bank was discouraged by making second loss facilities more costly through higher capital adequacy. banks are however permitted to invest outside the prescribed limit for non - listed investments in abs and mbs which are rated at or above the minimum investment grade. 18. another feature of the 2006 guidelines was the requirement that the gain on securitization of assets should not be recognized upfront and should be amortised over the life of the securities issued. this requirement was put as a conservative measure to avoid securitisation being used to inflate profits even while banks exposures in

issues, both at national and sub - national levels, i am emboldened by the occasion provided by the theme of his book to share some of my own thoughts on the subject. 5. from a fiscal perspective, india ’ s federal system has three important components : ( 1 ) article 1 of the constitution states that india, that is bharat, shall be a union of states ; ( 2 ) the seventh schedule of the constitution allocates subjects to the union and the states under different lists, with overlapping functions contained in a separate concurrent list ; and ( 3 ) article 280 of the constitution mandates formation of the finance commission every five years to recommend vertical and horizontal devolution of net central taxes and various other grants. 6. over the past decades, the actual working of these constitutional provisions have generated considerable debate. successive finance commissions have made efforts to address the emerging issues and challenges, but in a vibrant democracy like india the debate goes on. geopolitical risks have necessitated higher expenditure on defence and internal security. natural calamities and disasters have called for higher expenditure on relief and rehabilitation. in parallel, aspirations of the people and the country as a whole have required that the government spends more on developmental programmes. 7. the interplay between such developments in the real economy and certain features embedded in our constitution have thrown up issues which need to be addressed. i would like to highlight some of these issues. while doing so, i must hasten to stress that the points i am bringing out do not represent the deliberations or the direction of thinking of the 15th finance commission where i functioned as a member for more than a year. 1 / 2 bis central bankers'speeches ( 7. 1 ) over past several decades, finance commissions have adopted different approaches with regard to principles of tax devolution, grants to be given to states and fiscal consolidation issues. while at one level, there has to be a framework for fresh and innovative thinking by every finance commission ; at another level, there is a need to ensure broad consistency between finance commissions so that there is some degree of certainty in the flow of funds, especially to the states. this has become even more critical in the post gst scenario. in other words, there has to be continuity and change between finance commissions. increasingly, therefore, it is felt that there is a need to give permanent status to the finance commission. the commission can function as a leaner entity in the intervening period till the next finance commission is set up