Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
5) Discuss the need for a robust and transparent securitisation framework in Indian financial systems also discuss measures to develop the market further. (250 words)
Why this question:
The Reserve Bank of India (RBI) constituted a committee to review the existing state of mortgage securitization in India and suggest measures to deepen it.
Key demands of the question:
The answer must analyse the need for robust and transparent securitization framework in Indian financial systems. Discuss the present issues, causes etc.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
In a few introductory lines define need for securitization framework.
The body of the answer has to capture the following aspects:
Discuss the Committee on the Development of Housing Finance Securitization Market. Explain the details why the committee had to come in place, need for restructuring etc. Discuss that The mortgage securitization market in India is primarily dominated by direct assignments among a limited set of market participants on account of various structural factors impacting both the demand and the supply side, as well as certain prudential, legal, tax and accounting issues. For a vibrant securitisation market to develop, it is imperative that the market moves to a broader issuance model with suitable structuring of the instruments for diverse investor classes. At the same time, as the international experience shows, it is critical to address the issues of misaligned incentives and agency problems resulting from information asymmetry problems between the originators and investors in the market, which can exacerbate systemic risk. Thus, a careful design of a robust and transparent securitization framework assumes paramount significance.
Conclude with significance of the same.