LS paves way for listing of securitised instruments

NEW DELHI: The Lok Sabha on Monday passed a crucial legislation which seeks to develop India’s securitisation market by facilitating listing and trading of securitised certificates or instruments on stock exchanges.

The Securities Contract (Regulation) Amendment Bill, 2007, to amend the Securities Contracts (Regulation) Act, 1956, was passed by a voice vote without discussion. This will allow banks and financial institutions to keep these securitised loans off their balance-sheet, thus reducing the need for additional capital along with giving them an alternative form of funding risk transfer, a new investor base and potential capital relief.

Securitisation is a form of financing, involving pooling of financial assets and the issuance of securities that are re-paid from the cash flows generated by the assets. This is generally accomplished by actual sale of the assets to a bankruptcy-remote vehicle, that is, a special purpose vehicle, which finances the purchase through the issuance of bonds. These bonds are backed by future cash flow of the asset pool. The assets for securitisation transactions include mortgages, credit cards, auto and consumer loans, student loans, corporate debt, export receivables and off-shore remittances.

“Keeping in view potential of the market, international trends and consultations with major institutional participants and market experts, it was decided to amend the Securities Contracts (Regulation) Act, 1956,” the statement of Objects and Reasons of the Bill said.

The bill, piloted by finance minister P Chidambaram, provides for vesting powers of regulation to the Securities and Exchange Board of India (Sebi).

The bill was introduced by the government in 2005. It was then referred to a standing committee. The government accepted all recommendations of the committee, the finance minister said. However, since the approach of the committee and the government was different, it was proposed to withdraw the bill and move a revised bill — the Securities Contracts (Regulation) Amendment Bill, 2006, he said.