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BFSI Chronicle, 11 Edition September 2022
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can be summarised as follows: Marketable Securities.
Banks can remove such loans from their Transfer of Funds from a less effi cient Debt
Balance Sheet and this reduces the regulatory Market to a more Efficient Capital Market
capital requirement. through Securitisation.
It is an alternative to Banks and Financial Conclusion:
Institutions for the transfer of Funding Risk For Originator, Securitisation mainly results in
and development of the Capital Market. Receivables being replaced by Cash which improves
the liquidity position of the firm. It removes the
Reduce Lending Concentration and Improve assets from the balance sheet of the Originator thus
Liquidity. releasing the Capital for other uses and enabling
the Restructuring of the Balance Sheet by reducing
Attainment of Funds at Lower Costs since Large Exposures or Sectoral Concentration.
these are Isolated from Potential Bankruptcy
Risk of Originator. It facilitates good Asset Liability Management
by reducing Market Risks which can arise due to
Better matching of Assets and Liabilities and Interest Rate mismatches. This process also enables
development of Long-term Debt Market. the originator to recycle assets more frequently and
thus improve the institution’s earnings. Finally,
Provides a Diversified Pool of uniform Assets transparency may be improved since Securitisation
to Banks and Financial Institutions. results in more Identifiable Assets on the Balance
Sheet.
Converting Non-Liquid Assets into Liquid
In brief, Originator Transforms his Illiquid Assets
like Mortgages, Lease Rentals etc. into Liquidi-
ty by raising funds on them which can be used
to increase Business. The Cost of Raising funds
will be Lower as there will be a Wider Investment
Base and Liquidity. Also, the Credit Risk of the
originator will be diversifi ed.
References:
• ‘Origin of Securitisation’ information from
• RBI Circulars on Securitisation. various Websites.
The Institute Of Cost Accountants Of India
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