Page 28 - Banking Finance February 2022

ARTICLE

DEBT

SECURITIZATION-

THE PROCESS

TO UNDERSTAND

Introduction: Securitization is liquidating long term assets in to
marketable securities like Pass through certificates/
Securitization is the process of liquidating the long term
Preferred stock certificates/Asset based commercial paper.
assets like loans and receivables of financial institutions by
The success of securitization depends upon asset's quality,
issuing marketable securities against them.
amount of amortization, default experience of original
borrower, financial reputation and soundness etc. The
It can be further defined as "a carefully structured process advantages associated with securitisation can be narrated
whereby loans and other receivables are packaged, as under:
underwritten and sold in the form of asset backed
Innovative and Low Cost Source of Fund
securities".
Better Capital Adequacy Norms
Securitization is basically a structured financial transaction. Creation of More Credit
Securities evolved out of Securitization process is different
Increased Profitability
from the Conventional Securities like bonds, debentures etc.
on points like Source of repayment / Structure /Nature of Tool for Asset-Liability Management
securities. Higher Rate of Return
Spreading of Credit Risk
About the author Better than Traditional Instrument

B. B. Lenka
Back Ground of Securitisation:
Chief Manager
Union Bank of India The securitization process was first started in U.S.A, where
Staff College, Bengaluru the first structured asset securitized financing came into

28 | 2022 | FEBRUARY | BANKING FINANCE