SECURITIZATION OF ASSETS
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What is securitization of assets in the context of Indian banking?
Securitization is the process by which illiquid assets (such as loans) are pooled together and converted into marketable securities, enabling the originator to raise funds by transferring the assets to a Special Purpose Vehicle (SPV).
What is the primary objective of securitization for an originating bank?
To convert illiquid assets into liquid tradeable securities for funding.
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 and issue securities (Pass Through Certificates or Pay Through Certificates) to investors, ensuring bankruptcy remoteness from the originator.
What is the meaning of 'off-balance sheet' treatment in securitization?
Securitized assets are removed from the originator's balance sheet after true sale.
Which RBI guidelines primarily govern securitization of standard assets by banks in India?
RBI's Guidelines on Securitisation of Standard Assets (updated in September 2021) govern the process, laying down norms on MRR, MHP, due diligence, disclosure, and capital treatment for originating banks.
What is a collateralized debt obligation (CDO) in securitization?
A structured security backed by a pool of loans or bonds in tranches.
What does MRR stand for in securitization and what is its significance?
MRR stands for Minimum Retention Requirement; it mandates that the originator retain a minimum economic interest in the securitized pool, aligning incentives and ensuring the originator has 'skin in the game'.
What is a mortgage-backed security (MBS) in the Indian context?
A security backed by a pool of residential or commercial mortgage loans.
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