Critical success factors in asset securitisation in banks in India

Abstract

Asset securitization is the structured business process whereby Banks’ loan assets and other receivables are packaged and sold in the form of ‘asset-backed securities’(ABS), thereby loan originators transfer some of their loan-risks to third parties. Asset securitization considers a pool of performing/non-performing retail loan assets and through financial engineering models, transforms them to tradable security by involving a Special Purpose Vehicle (SPV) that issues Negotiable Instruments (like Bonds/Promissory Notes/CPs) called Pass Through Certificates (PTCs) to Investors. In Indian context, most asset securitisation deals are done on Direct Assignment (DA) basis through retail loans-asset pool transfer to pool-buyer Bank with no SPV in between and hence no tradable security. This Research study analysed ‘Critical Success Factors (CSFs)’ in Indian model of asset securitisation (Li Liu, 2021) and in the process also analysed its associated business-processes, systematic-risks, Issues & challenges. This study sourced its primary data from hands-on deal-practitioners and Subject Matter Experts (SMEs) associated with deal-participating entities and through qualitative data analysis technique of Narrative analysis and Applied Conversation analysis, the research-findings are concluded. The CSFs include - key business benefits including achieving lending targets & compliance norms, supporting IT systems, immediate liquidity support (Chilukani Munender Reddy, 2018). Towards future prospects and challenges (Lakshman Alles, 2021), this study suggests for setting up ‘Centre of Excellence (CoE) for Assets Securitisation’ in each bank, for ‘building product-expertise and evolve appropriate asset-pricing-models for deals and PTC securities’. The study also suggests for an ‘Enabling IT systems’ that support automated deal-processes, risk-monitoring and compliance tracking’. These two aspects would facilitate for better deal-transparency and for making informed decisions by deal stake-holders.