Securitization is the process of taking illiquid assets like mortgages, student loans, or auto loans and transforming them into tradable securities. This is done by pooling many assets and issuing securities backed by those assets, making the assets more liquid. For example, a mortgage-backed security bundles many mortgages together and issues securities of varying risk levels. This provides liquidity to the original illiquid assets and allows various investors to invest based on their risk tolerance. Securitization has been used in India since the early 1990s, with the largest deals involving pools of auto loans or aircraft receivables.

1. DEFINITION OF 'SECURITIZATION'
 Securitization is the process of taking an
illiquid asset, or group of assets, and
through financial engineering, transforming
them into a security.

2. The process through which an issuer
creates a financial instrument by
combining other financial assets and
then marketing different tiers of the
repackaged instruments to investors.
The process can encompass any type
of financial asset and promotes
liquidity in the marketplace.

3. Example
A typical example of securitization is
a mortgage-backed security (MBS).

4. Process

5.  First, a regulated and authorized financial
institution originates numerous mortgages, which are
secured by claims against the various properties the
mortgagors purchase. Then, all of the individual
mortgages are bundled together into a mortgage
pool, which is held in trust as the collateral for an
MBS. The MBS can be issued by a third-party
financial company, such a large investment banking
firm, or by the same bank that originated the
mortgages in the first place. Mortgage-backed
securities are also issued by aggregators such as
Fannie Mae or Freddie Mac.

6.  Regardless, the result is the same: a new
security is created, backed up by the
claims against the mortgagors' assets. This
security can be sold to participants in the
secondary mortgage market. This market is
extremely large, providing a significant
amount of liquidity to the group of
mortgages, which otherwise would have
been quite illiquid on their own.

7.  Furthermore, at the time the MBS is being
created, the issuer will often choose to break
the mortgage pool into a number of different
parts, referred to as tranches. These
tranches can be structured in virtually any
way the issuer sees fit, allowing the issuer to
tailor a single MBS for a variety of risk
tolerances. Pension funds will typically invest
in high-credit rated mortgage-backed
securities, while hedge funds will seek higher
returns by investing in those with low credit
ratings.

8. What can be securitization
 Auto loan
 Student loan
 Mortgages
 Credit and receivables
 Lease payment
 Account receivables

9. Example of securitization in India
 First securitization deal in India between
Citibank and GIC Mutual fund in 1991 for Rs
160 million.
 L&T raised Rs. 4090 million through the
securitization of future lease rentals to raise
capital for its power plant in 1990.
 Securitization of aircraft receivables by Jet
Airways for Rs. 16000 million in 2001 through
offshore SPV
 India's largest securitization deal by ICICI
bank of Rs. 19,299 million in 2007. the
underlying asset pool was auto loan receivables.