CAIIB RB Unit 17 - Securitisation

Securitisation is the process of converting and breaking definable asset classes into tradable units and selling to others through a mechanism called as Special Purpose Vehicle (SPV).

The Special Purpose Vehicle converts assets into securities called as 'Pass Through Certificates' and sell them to the buyers who may require that particular asset class as a requirement or investment.

Since these certificates are backed by assets, they are also called asset backed securities (ABS).

If assets which have underlying mortgages are secuiritised, they are called as "Mortgage Based Securitisation".

EMI FOR REPAYMENT IN RETAIL LOANS

Recoveries are effected in retail loans by Equated Monthly Installments or simply EMIs.

The formula for calculation of EMI :

EMI = [P x r x(1+r)^n)] / [(1+r)^n - 1)]

where
p = principal (amount of loan),
r = rate of interest per month (eg.: if interest rate per annum is 10% then 10/(12*100))
n = no. of installments