Securitization

Definition:

Process of transformation of liquid asset into security which may be traded later in the opening market. That means transformation of liquid asset, non-marketable into securities which are liquid and marketable.

steps in securitization

1. the bank or any other financial  agencies that has decided to securitize its asset is known as the originator 
2. the asset of homogeneous nature are them pooled together. there after the pooled assets are sold to 3rd party which is called special purpose vehicle. 
3. after the aquisition of assets the SPV splits the pool of asset into tradable securities of uniform maturity
4. in order to make the issue attractive the SPV enters into credit enhancement process
5. by relying upon the rating the investors purchase the securities
6. a merchant banker will manage the public issue of the securities 
7. as cash flows arise on the  assets these are used by the SPV to repay funds to the investors in the securities

BENEFITS 

TO ORGANIZATION:

1.     . Securitization transforms into marketable securities.
   2.       It removes assets from the balance sheet of the org.
   3.       It facilitates better asset liability management reducing market risk resulting from interest rate mismatch
   4.       Help to improve transparency
   
   

TO THE INVESTORS 

1.             Its  risk free
   
   
   2.       Provide an opportunity for matching cash flow and asset liability management 
   
   
   TO BUYERS
   Purchase receivable
   He enters into the transaction on the strength of recivable which are usually of high quality and thus his advance is safe