Debt securitisation - A new way to raise public money

....!!!^^ Wind is blowing heavily, thunders in sky. Mr. Shyamlal praying god for 10 days hardly without food and water. All of a sudden god appeared before him.............

Who is shyamlal and why is he praying?

Shyamlal is CEO of Loot Bank Pvt Ltd. He invested all his ancestral property into bank. He concentrated more on vehicle loans and credit cards, so that he can loot from public well. But the case went opposite, public looted him by not paying any interest or principal on time,but were paying lately. (This is the flashback)

God : My son don't worry.I forget to tell in Bagavad Gita a principle called " Divide your burden among all my sons & enjoy happily". Now you follow that.

Shyamlal : Sorry oh merciful god, i didn't get you. How can i divide my burden.

God : People in this Kaliyug are more interested with a magic word called "shares". You divide your illiquid asset into pieces and sell them as shares. you will get money, as and when you collect money you distribute to them.

Shyamlal : But god, How can i do so. will people purchase that shares.

God : Son, you are asking me more questions. Perhaps CA question paper is easy than this. My sweet children has started PINNACLE services, ask them they will tell you the procedure. Bye.......

The above process is known as Debt securitisation or Asset securitisation. It means the process by which non tradable or illiquid assets like mortgage loans, auto loan receivables , cash credit receivables are converted into tradable securities.

The originator, entity owning the assets out of a hire purchase agreement identifies a pool of homogeneous assets, which it desires to securitize.

1.  Originator transfers the assets to a different entity who has trust agreement with trustee, Guarentee agreement with guarentee and is top rated by rating agency, commonly known as special purpose vehicle (SPV)

2. SPV will convert such assets into certificates known as Pay through or Pass through certificates and sell those certificates to public.

3. Public subscribes to such certificates and pay to the SPV

4. SPV after deducting his charges transfers the proceeds to Originator.

5. The debtors will pay interest and principal.

6. As and when SPV collects money from debtors will be immediated distributed to public (In case of pass through certificates) or will accumulate upto a point of time,say a year and then distribute to public (In case of pay through certificates).