Page 234 - DMGT303_BANKING_AND_INSURANCE

Unit 11: Innovations in Banking

 SPV then splits the pool of transferred assets into individual securities of tradable size and Notes
reimburses itself by selling them in the debt secondary market to investors. These securities
are known as "PTC" pay or pass through certificates.
 Repayments under the securitised loans keep on received by the originator and passed on
to the SPV, who in turn makes use of them for redeeming the securities issued to the
investors.
 The PTCs are tradable in the secondary market till their maturity date.

11.14.2 Advantages

 Diversifies the funding sources of lenders

 Lenders can augment their lendable resources
 Enables quick recycling of lent funds
 Enables increased volume of lending
 Helps in capital adequacy compliance

11.15 Hire Purchase

 It is like leasing except for the fact that ownership of the hired asset gets transfer to the
name of the hiree and hence he is entitled for depreciation.

 Hiree pays hiring charges at stipulated intervals and quantum by the hirer.
 Hirer enjoys the right to take back the possession of the asset, once hiree defaults in
payment of any instalment under hire purchase agreement.

11.16 Leasing

 Enables a person to acquire the right to make economic use of asset without owning it for
a specified period of time.
 Agreement is signed by the owner of asset called lessor and the user called the lessee.

 Lessor permits the lessee to use the asset for a consideration known as lease rentals,
payable at periodical intervals.
 Lease Agreement sets forth the period covered by the lease, provisions for payment of
taxes, insurance, maintenance expenses, provisions for renewals, purchase of the asset on
the expiry of the lease agreement, payment schedule of lease rentals, etc.
 Leasing could be of following types:

Financial lease/capital lease/full pay out lease

Lessor amortizes the full value of the asset, cost of capital plus administrative expenses within
the period of the lease/asset life.
Lessor is normally responsible for maintenance, insurance and tax lease agreement is irrevocable.

Operating lease

Lease facility is offered for as short a period as desired by the lessee.

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