Securitization
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What is securitization in the context of Indian banking?
Securitization is the process of pooling illiquid financial assets (such as loans) and converting them into marketable securities (Pass Through Certificates or PTCs) that can be sold to investors.
What is the primary regulatory framework for securitization of standard assets by Indian banks?
RBI Master Direction on Securitization of Standard Assets, 2021.
Which RBI guidelines govern securitization of standard assets by banks in India?
RBI's Guidelines on Securitisation of Standard Assets (originally issued in 2006 and revised in 2012 and 2021) govern the securitization of standard assets by banks and NBFCs.
What is the minimum holding period for home loans before securitization under RBI guidelines?
12 months for home loans with original maturity above 24 months.
What is a Special Purpose Vehicle (SPV) in securitization?
An SPV is a legally separate entity created solely to purchase the pool of assets from the originator, issue securities backed by those assets, and isolate the assets from the originator's bankruptcy risk.
What percentage of book value must originators retain as MRR for loans with maturity above 24 months?
10% of the book value of the securitized assets.
What are Pass Through Certificates (PTCs) in securitization?
PTCs are securities issued by the SPV to investors, where the cash flows (principal and interest) from the underlying loan pool pass through to the investors proportionately.
What is a waterfall mechanism in securitization?
Priority order for distributing cash flows among different tranches of investors.
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