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Economy and Finance

Securitization volumes likely to jump ₹1.70 lakh crore in FY23: ICRA

12 Jan 2023 Zinkpot 187
Securitization volumes likely to jump ₹1.70 lakh crore in FY23: ICRA

 Business Line - Securitisation volumes for FY23 can reach ₹1,70 lakh crore, as against ₹1,26,500 crore in FY22, a domestic rating agency estimated on Wednesday. Icra Ratings said securitisation volumes are estimated to have jumped 58 per cent to ₹1.17 lakh crore in the April-December 2022 period as compared to the same period last year. Read more
 

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  •  What is securitization? Securitization is a process by which a company clubs its different financial assets/debts to form a consolidated financial instrument which is issued to investors. In return, the investors in such securities get interest.
  • Securitization provides lenders with liquidity and is an effective means of diversifying their portfolios to reduce risk.
  • The large pool of debt instruments that are securitized are divided and sold in smaller chunks called tranches, with each tranch representing a claim to a portion of the receipts from the underlying debt instruments.
  • Tranching gives smaller investors the opportunity to purchase such instruments and enables lenders to raise more money by selling them to a broader market.
  • Process of Securitisation: Financial organisations first list out all the assets that they want to securitize and remove from their associated balance sheets and then gather the details of these assets. All this information (called reference portfolio) is then sold to the issuers who create tradable securities.
  • The investors can then buy these securities and these reference portfolios can also be divided into smaller sections called tranches which categorise these assets on various factors like rate of interest, maturity date, type of loan, etc. 
  • Thus, each branch has a different risk factor and rate of return, so the investors can buy them as per their budget and requirements, thus reducing the liability of the original creditor or lender
     
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Tags Securitisation ICRA
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