Structured Finance products:

Securitization
  What is structured finance
 What are most popular structured finance products.
Outline  Understand securtization
 Process Behind asset backed securitization
 Structured finance encompasses all advanced private and public
financial arrangements that serve to efficiently refinance and
hedge any profitable economic activity beyond the scope of
conventional forms of on-balance sheet securities (debt, bonds,
Stuctured equity) at lower capital cost and agency costs from market

Finance impediments and liquidity constraints.

A primer on structured finance Andreas A. Jobst International
Monetary Fund (IMF), Monetary and Capital Markets Department
(MCM), 700 19th Street, NW, Washington DC 20431, USA
  Structured finance is invoked by financial and nonfinancial
institutions in both banking systems and capital markets if
either (i) established forms of external finance are unavailable
(or depleted) for a particular financing need, or (ii) traditional
sources of funds are too expensive for issuers to mobilise
sufficient funds for what would otherwise be an unattractive
investment based on the issuer’s desired cost of capital
Why ??  Permit issuers to devise almost an infinite number of ways to
combine various asset classes in order to both transfer asset risk
between banks, insurance companies, other money managers
and nonfinancial investors in order to achieve greater
transformation and diversification of risk.
  The increasing complexity of the structured finance market,
Why is it under and the ever-growing range of products being made available to
investors, however, invariably create challenges in terms of
scanner efficient management and dissemination of information.
  Asset securitisation describes the process and the result of
converting (or monetising) a pool of designated financial assets
into tradable liability and equity obligations as contingent
Securitization claims backed by identifiable cash flows from the credit and
payment performance of these asset exposures.
  Individual mortgages may be “pooled” and sold as a unit to
reduce uncertainty

Asset backed  Assets can be loans leases, credit card debt receivables etc.

Securitization
Securitization
  The implicit risk transfer of securitisation allows issuers to
benefit from more cost-efficient terms of high-credit quality
finance without increasing their on-balance sheet liabilities or
compromising the profit-generating capacity of assets.
Issuer and
Investor  .Investors in securitisation have a wider choice of high-quality
investments at their disposal, whose market valuation
engenders greater overall efficiency and liquidity of capital
markets.
  The off-balance sheet treatment of securitisation also serves (i)
to reduce both economic cost of capital and regulatory
minimum capital requirements as a balance sheet restructuring
For banks tool (regulatory and economic motive) and (ii) to diversify
asset exposures (especially interest rate risk and currency risk)
Basic Structure
 Securitization as a financial instrument has been in existence in
India from the early 1990s. Despite being in existence for
nearly three decades, securitization market in India continues to
be in its nascent stages.

 For several years in the past, a major driver for securitization in

India was the priority-sector lending requirements of the RBI.
 The regulations permit that the bank that fails the PSL
requirements may fill the same by buying other PSL-eligible
portfolios, or even buying pass-through-certificates backed by
PSL portfolios.
Process
 In India, the securitized paper was called pass-through
certificates or PTCs as they represented beneficial interest in
the receivables. Therefore the securitization structure is often
referred to as PTCs route in India as well.
Path
  To increase ROE:
Motivation for  To reduce capital requirements:
banks  To obtain cheaper funding
  Banks can use securitization to (1) support asset growth, (2)
diversify their funding mix and reduce cost of funding, and (3)
reduce maturity mismatches.
Funding  Securitizing assets also allows a bank to diversify its funding
mix
  Balance Sheet Capital Management Banks use securitization to
Balance sheet improve balance sheet capital management. This provides (1)
regulatory capital relief, (2) economic capital relief, and (3)
management diversified sources of capital.