Securitization it is a process of taking of illiquid asset or group of assets and transferring it into securities by borrower for the purpose of loan such as residential mortgage, commercial mortgages, auto loans, selling securities to third party, etc... Structured finance is a financial instrument that mitigates serious risks related to complex assets. This is mostly suitable for borrower of greater needs, such as corporation to arrange substantial financial needs
Securitisation is structured finance instrument which balances the risk and return needs of investor. Securitisation helps in growth of Indian economy. An Act is passed relating to this that is, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002". This Act works as a regulatory mechanism for securitisations in India.This Act aims to fulfil the following objectives:
1) To provide greater control to the banks and financial institutions (secured creditors) over the assets of defaulting borrowers,
2) Transfer of non-performing assets to Asset Reconstruction Companies, for management, dealing or disposal and realisation of proceeds,
3) Legal and regulatory provisions relating to Securitisation of assets.
This Act provides a mechanism for controlling of non-performing assets and securitisation of the same through securitisation/reconstruction companies. The Act defines ‘securitisation’ as the acquisition of financial asset by any securitisation company or reconstruction company from any ‘originator.’ The Act clearly lays down the manner in which the securitisation transactions shall take place and its applicability on the parties involved in such transactions. The Securitisation Act is applicable upon the secured creditors. This act provides how to transfer Non Performing Assets to securitisation. It controls secured creditors which are financial institutes. Over all securitisation and structure finance explains how to convert Non Performing Assets into security and helps in recovering loan.