CRR reduced

March 9, 2012: RBI has cut Cash Reserve Ratio (CRR) by 0.75 per cent to 4.75 per cent.

Disinvestment

In finance and economics, divestment or divestiture is the reduction of some kind of asset for either financial or ethical objectives or sale of an existing business by a firm. A divestment is the opposite of an investment.

Motives:

Firms may have several motives for divestitures.

First, a firm may divest (sell) businesses that are not part of its core operations so that it can focus on what it does best. For example, Eastman Kodak, Ford Motor Company, and many other firms have sold various businesses that were not closely related to their core businesses.

A second motive for divestitures is to obtain funds. Divestitures generate funds for the firm because it is selling one of its businesses in exchange for cash. For example, CSX Corporation made divestitures to focus on its core railroad business and also to obtain funds so that it could pay off some of its existing debt.

A third motive for divesting is that a firm's "break-up" value is sometimes believed to be greater than the value of the firm as a whole. In other words, the sum of a firm's individual asset liquidation values exceeds the market value of the firm's combined assets. This encourages firms to sell off what would be worth more when liquidated than when retained.

A fourth motive to divest a part of a firm may be to create stability. Philips, for example, divested its chip division called NXP because the chip market was so volatile and unpredictable that NXP was responsible for the majority of Philips's stock fluctuations while it represented only a very small part of Philips NV.

A fifth motive for firms to divest a part of the company is that a division is under-performing or even failing.

A sixth reason to divest could be forced on to the firm by the regulatory authorities, for example in order to create competition.

Securitization

Securitisation is the process of conversion of existing assets or future cash flows into marketable securities. In other words, securitisation deals with the conversion of assets which are not marketable into marketable ones.

For the purpose of distinction, the conversion of existing assets into marketable securities is known as asset-backed securitisation and the conversion of future cash flows into marketable securities is known as future-flows securitisation.

Some of the assets that can be securitised are loans like car loans, housing loans, et cetera and future cash flows like ticket sales, credit card payments, car rentals or any other form of future receivables.

Suppose Mr X wants to open a multiplex and is in need of funds for the same. To raise funds, Mr X can sell his future cash flows (cash flows arising from sale of movie tickets and food items in the future) in the form of securities to raise money.

This will benefit investors as they will have a claim over the future cash flows generated from the multiplex. Mr X will also benefit as loan obligations will be met from cash flows generated from the multiplex itself.