2. Professional Risk Opinion Securitisation & Secondary Mortgage market By Rajesh Mokashi Deputy Managing Director, CARE

3. 3 Source: Presentation by HDFC Ltd.

4. 4 Source : CARE Ratings estimates

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7. Challenges to Housing finance Long tenor of financing 15-20 years Typical Bond /Loan funding of 5-7 years leads to ALM mismatch requiring dependence on refinancing. Restricted appetite of Banks considering dependence on short term deposits Limted set of Investors particularly Life insurance companies. 7

8. Source : CARE Ratings estimates

11. 97% of others, or 15% of total comprises of new asset class in securitization – Secured SME Loans (Secured by property mortgage) Source : CARE Ratings estimates

12. Major Securitization Drivers in India Funding source. Originators who can consistently originate good quality loans but face capital constraints to growth. Back to back funding Meeting investor appetite of different investors such as Life Insurance Cos, PFs and Mutual funds. Achieving exposure to specific assets Banks are extensively used this tool as investors to fulfill their priority sector lending target 12

13. Performance of ABS and MBS pools 13 Strong performance PoolsFY09FY10 Pools Outstanding400395 Default03 Includes data of all rating agencies. * Source: publicly available data

14. Why Securitization in Indian markets remains strong Strong Originators Predominantly prime obligors Lower LTVs Simplicity of structure February 15, 2014

15. Investor Preferences Higher yield at least 50-100 bps above similar rated bond Monthly cash-flow structure Priority sector requirements Robust performance- Negligible default rate in India Increased interaction with rating agency February 15, 2014

16. Role of Credit Rating Agency Robust rating framework Identification of Risk Estimation of expected loss Stress testing 16

17. Impediments to Securitisation Rising interest rates Lack of proper interest rate benchmark Restricted investors- Need to permit pension funds to invest High stamp duty and varying across many states Lack of standard documentation Investor preference only for AAA paper 17

18. Covered Bonds Post financial crisis there has been a renewed interest in covered bonds for mortgage financing. Are obligations of the issuers backed by a cover pool of mortgages as also an overcollateral. Idea is to create a special right on assets in the cover pool Ratings often several notches higher than originator. 18

19. Conclusions Secondary mortgage market critical to give impetus for housing finance New investors to be allowed in the securitisation market. Standard documentation Standard benchmarks New instruments such as covered bonds 19

20. THANK YOU 20