Securitization, Financial Management

Securitization refers to conversion of illiquid assets to liquid assets by converting longer duration cash flows into shorter duration ones. Securitization denotes the process of selling assets by the person holding it to an intermediary, who in turn will break such assets into marketable securities. The assets may virtually be anything ranging from future sales of cinema tickets and airline tickets to hire purchase deals and Non-Performing Assets (NPAs).

Securitization is a process through which illiquid assets are transformed into a more liquid form of assets and distributed to a broad range of investors through the capital market. Despite the obvious advantages this process confers on institutions and companies - especially those having large receivables - securitization in India has not taken off. So far confined to a few deals involving some non-banking companies and foreign banks, securitization waits for all round initiatives before it can emerge as an important capital market instrument. One significant obstacle might have been the fact that despite being talked about so much, very few people can understand it. A securitized transaction is best understood through by a typical example. A Non-Banking Finance Company (NBFC), which has lent money to truck operators for the purchase of vehicles, will have in its balance sheet these assets for a fairly long period (until the hire purchase transactions are paid-off). Funds used to finance the purchase of these vehicles, therefore, get blocked. Securitization will help in removing these relatively illiquid assets from the NBFC's balance sheet. By conveniently sending them out to other investors, who now basically buy negotiable instruments, it will be able to recycle its funds. The security for the new investors will be the expected cash flow from the securitized assets. 

 

Posted Date: 9/8/2012 7:46:54 AM | Location : United States







Related Discussions:- Securitization, Assignment Help, Ask Question on Securitization, Get Answer, Expert's Help, Securitization Discussions

Write discussion on Securitization
Your posts are moderated
Related Questions
Explain Exchange Rate Risk Exchange-rate risk denotes to the risk the swap bank faces from fluctuating exchange rates throughout the time it takes the bank to lay off a swap it

Decentralization This is a company power structure in which authority and decision-making responsibility are diffused throughout various stages of an organization. Decentraliz

Portfolios are simply combinations of different securities. The characteristics of investments do differ when we possess them in combinations or portfolios. As we shall see, an ass

Definition of 'Bank Credit': The amount of credit available to a business or individual from the banking system. It is the aggregate of the amount of funds financial instituti

What is the Investment evaluation Investment evaluation the primary purpose of measuring the cost of capital is its use as a financial standard evaluating investment projects

Project Evaluation The expected value calculations are crucial to project investment decisions. The following example explains the use of probabilities in project evaluation.

What the term objectives denotes- financial management It must be noted at the outset that term 'objective' is used in the sense of a goal or decision criterion for three decis

Calculation of weighted average cost of capital (WACC) Market values Market value of equity = 5m × 4.50 = $22.5 million Market value of preference shares = 2.5m × .0762 =

What is an LBO?  What are the risks for the equity investors and what are the potential rewards? A term leveraged buyout is a purchase of a publicly owned corporation through a s

(a) A debt of $3600 with interest at 6% compounded semiannually is to be amortized by semiannual payments of $900 each, the rst due in 6 months, together with a nal partial payme