Securatization is the process of convertion of debts in to the marketable securities. As banks gives loans for many purposes, by giving loans the cash will get outflowed but inflow will be after the some years. So banks may get liquidity problems,may not able to give loans to other people. To overcome from this the securatization will help the banks. as loans are given by banks on mortgage the banks will sell such receivable to Special purpose vehicle and get the cash from SPV. Special purpose vehicle will appoint credit rating agency to rate the different loans. The SPV will convert such debts in to marketable securities, where the investors can invest in such securities. Based the rating given by the credit rating agency the investors will invest in the securities. The investors will get the interest for their investment.
- Helps banks to maintain liquidity
- Helps banks to give new loans where bank can generate more interest
- Investors can invest according to the credit rating and get returns