Trust-Backed Ssi Loans May Be Securitised

The Credit Guarantee Fund Trust for Small Industries (CGTSI), an associate institution of the Small Industries Development Bank of India (Sidbi), has appointed SBI Capital Markets Ltd to conceptualise and put in place a securitisation framework for the trust-guaranteed small-scale industry (SSI) loans extended by commercial banks.

Securitisation of the SSI loans will enable banks to become liquid as they can sell their loans at a discount to a special purpose vehicle (SPV), which will buy the assets (loans) from the banks and sell it to investors from the private sector and foreign banks, who want to fulfill their priority sector lending targets.

Securitisation is a process by which future cash flows of the commercial banks (originator) are converted and sold as securities that will carry a fixed rate of return to the holders of beneficial interest. It works by grouping together assets with predictable cash flows or rights to future income streams and turning them into bond-style securities that are then sold to investors.