Page 23 - Banking Finance April 2021

COVER STORY

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

About the author Y Higher Rate of Return
Y Spreading of Credit Risk
B. B. Lenka Y Better than Traditional Instrument
Chief Manager, Faculty
Union Bank of India Staff College
Bengaluru Background of Securitization:
The securitization process was first started in U.S.A, where

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