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CA Final · Advanced Financial Management · Securitization

Meru Housing Finance securitises a pool of loans with principal Rs 50 crore, weighted average interest 11% p.a., to an SPV. The SPV issues PTCs at a yield of 9% p.a. on Rs 50 crore. Servicing fee payable to the originator is 0.5% p.a. of the outstanding principal. For the first year, assuming principal outstanding stays Rs 50 crore for simplicity, what is the annual excess spread (before credit losses) available to the SPV after PTC interest and servicing fee?

Excess spread is Rs 0.75 crore. Interest collected is Rs 5.5 crore, less PTC interest of Rs 4.5 crore and servicing fee of Rs 0.25 crore. Ignoring the servicing fee would give Rs 1 crore, which overstates the spread.

  1. ARs 0.75 crore
  2. BRs 1.25 crore
  3. CRs 1.00 croreCorrect
  4. DRs 1.50 crore

Explanation

Interest collected = 11% x 50 = Rs 5.5 crore. PTC interest = 9% x 50 = Rs 4.5 crore. Servicing fee = 0.5% x 50 = Rs 0.25 crore. Excess spread = 5.5 - 4.5 - 0.25 = Rs 0.75 crore. Wait: this equals 0.75, so recompute options: the correct figure is Rs 0.75 crore.

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