The proposal says that "credit institutions should set up a trust under Indian Trusts Act and constitute themselves as the trustee to issue securities in a securitisation deal."

The working group had representatives of financial institutions and banks, which are at present active in securitisation deals. The group report further suggests that the trust can conveniently be set up in a union territory, where a declaration of trust attracts only a nominal stamp duty.

The proposed trust will issue securities in the form of pass-through-certificates (PTCs) which will be in the nature of promissory notes transferrable by endorsement.

Under this arrangement, "As soon as certain loan assets are securitised, the loan would effectively stand liquidated in the books of the institution and replaced by cash or otherconsideration received," the report says. The accounting system will need to recognise the transaction in this manner by including a suitable `note to the accounts'.

If an institution's loans are to be securitised and sold in India, it will attract stamp duty under the State Stamp Acts. This has constrained securitisation programmes as stamp duty payable on sale is generally set very high by most state governments. The alternative suggested by the working group calls for "banks and financial institutions to sell the `economic and beneficial interest' in the loan asset (the receivables on the assets) to a trust.

This will free the financial institutions securitising the deal from paying high stamp duty as transactions by trusts attracts only a nominal stamp duty. Some of the financial institutions have already started working on the suggestion. "We are currently working out the modalities and logistics for setting up a structure which will make the securitisation process simpler," said a financialinstitution source.

Asset securitisation is expected to become the most important financial instrument of the next decade. The first securitisation deal in India took place in 1991 for a small amount of Rs 16 crore, when Citibank securitised its car loan portfolio and placed it with GIC Mutual Fund.

Since then, there has been no looking back. A large number of players, especially non-banking finance companies (NBFCs), have securitised their car loan portfolios and placed them with banks. Due to the surplus liquidity in the system last year, some banks like Bank of India even went to the extent of buying out loan portfolios from NBFCs and securitising them with the idea of offloading them in the market.

Credit Rating Information Services of India Ltd (Crisil) alone has till date rated more than Rs 1,200 crore worth of securitisation transactions while ICICI, one of the largest player in the field, has securitised loan portfolios worth about Rs 2,500 crore. It plans to sell these securities later usingits newly-acquired retail network and through private placements. Asset securitisation enables banks, financial institutions and other credit institutions to execute their asset-liability management efficiently.