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Meaning of Securitisation Company

Naveen Chand Khulve (CA) (1521 Points)

07 April 2010

What is the meaning of Securitisation Company?

Please explain

Thanx in advance

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Kaushik Vankadkar (Service) (350 Points)
Replied 08 April 2010

Securitization is a financial process in which interests in loans and other receivables, called assets, are packaged, underwritten, and offered as collateral in exchange for investment. By entering into the securitization transaction, the risk associated with holding a specific set of assets, called a pool, is transferred from the originator of the loans or issuer of the securities, which does not want the risk, to a group of investors, which is willing to take on that risk in exchange for the returns generated by the underlying assets in the pool. Such a transaction is called a deal.

Typically, a securities issuer will select assets to offer investors based on the investors' criteria. The issuer may have one or more Securitization transactions outstanding at a given time. Investors may then select the asset-backed securities that they wish to purchase from the securities issuer.

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Kaushik Vankadkar (Service) (350 Points)
Replied 08 April 2010

A bird's eye view of Securitisation process:

Suppose you are a FI who provide 2 wheeler's loans.

Till now you have created 1 crore loans. From which you are going to get interest as a reward.

Now to the installment will fall due slowly. And you are now in need of cash to supply more loans in the market in anticipation of rising 2 wheeler's demand.

You are cash starved as you have already projected in 1 crore loans.

So you pack these 1 crore receivables and sell to an investment company who is willing to take risk. These installment now will be collected by the investment company.

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