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BFSI Chronicle, 11 Edition September 2022
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‘CONVERSION OF

ILLIQUID ASSETS INTO

LIQUID ASSETS’

(Wider Scope of ‘Investment Opportunities’ to ‘Investors’ Through ‘Capital Market’)

Abstract:

ecuritisation started in the USA in 1970 with
the issue of ‘Residential Mortgages’ by Pub-
lic Housing Finance Corporations (HFCs).
These financial institutions observed that

Sto attract short-term deposits they are pay-
ing higher interest and at the same time their interest
earnings on the mortgage loans which are long-term
in nature, were very less. This created a mismatch be-
tween Assets and Liabilities. The solution was found in
‘Securitisation’.

The ‘Securitised Loans’ are procured by Provident &
Mutual Funds and also Insurance Companies. They have
funds but have no mechanism and expertise to assess,
grant and recover loans. Corporate Bodies like fi nance
companies which have expertise in such mechanism
gets liquid cash through the Process of Securitisation.
Thus, Securitisation helps both.

Since Securitised Assets go Off-the Balance Sheet of
Originator, the Asset base is brought Down and there-
by reducing the Regulatory Capital requirements to
support other Assets. Further, Asset Portfolio is also
liquidated by releasing Cash which in turn reduces the

financial institution’s need for Demand and Time Liabil-
ities that are subject to Statutory Reserves.

Abbreviations Used: ARC – Asset Reconstruction Com-
panies; CLO – Collateralized Loan Obligation; PTC – Pay
CMA Manmohan Sahu

Financial Advisor Through Certificates; SPV – Special Purpose Vehicle; QB
– Qualifi ed Buyers

The Institute Of Cost Accountants Of India

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