1. What is the primary objective of securitization of assets?
A. To increase the interest rate on loans
B. To convert shares into debentures
C. To convert illiquid assets into marketable securities
D. To reduce the bank’s capital adequacy ratio
Securitization allows banks to convert loans and receivables into tradable securities, improving liquidity and freeing capital.
2. Which of the following assets can typically be securitized?
A. Land and property owned by the bank
B. Loans such as home loans, auto loans, and credit card receivables
C. Bank’s fixed deposits
D. Cash in ATM machines
Securitization typically involves converting receivables like home loans, auto loans, and credit card dues into marketable securities.
3. Who is primarily responsible for collecting payments from the underlying assets in a securitization transaction?
A. Originator or servicer
B. Investors in the security
C. RBI directly
D. SEBI
The originator or designated servicer collects payments from the borrowers and passes them to the Special Purpose Vehicle (SPV) for distribution to investors.
4. Which entity purchases the assets in a typical securitization structure?
A. Reserve Bank of India
B. Commercial banks only
C. Individual investors directly
D. Special Purpose Vehicle (SPV)
In securitization, the originator sells assets to a Special Purpose Vehicle (SPV) which then issues securities to investors.
5. One of the key benefits of securitization for banks is:
A. Increasing NPA percentage
B. Freeing up capital and improving liquidity
C. Increasing the loan tenure automatically
D. Avoiding RBI regulations entirely
Securitization helps banks transfer credit risk, improve liquidity, and free regulatory capital for new lending.
6. Which of the following is a type of securitized instrument where investors receive a proportionate share of the cash flows?
A. Pay-through security
B. Zero-coupon bond
C. Pass-through security
D. Fixed deposit receipt
Pass-through securities distribute the cash flows from the underlying assets to investors in proportion to their investment.
7. Which regulatory body in India provides guidelines for securitization of standard assets by banks?
A. SEBI
B. Reserve Bank of India (RBI)
C. IRDAI
D. Ministry of Finance
RBI issues guidelines for banks on securitization of standard assets to regulate risk and capital adequacy.
8. Pay-through securities differ from pass-through securities in that:
A. Only banks can invest in pay-through securities
B. Pay-through securities do not provide any cash flow
C. Pass-through securities are risk-free
D. Pay-through securities allow multiple classes of investors with different payment priorities
Pay-through securities are structured to allow multiple tranches or classes of investors, each with different payment priorities or risk exposure.
9. What is a key risk associated with securitization for investors?
A. Credit risk of underlying assets
B. Inflation risk only
C. Risk of RBI interest rate changes only
D. Currency exchange risk only
Investors bear the credit risk of the underlying assets; if borrowers default, cash flows to investors may be reduced.
10. Which of the following is a benefit of securitization for the originator bank?
A. Reduces interest rate on existing loans
B. Guarantees profit for investors
C. Transfers risk and improves liquidity
D. Increases NPA proportion automatically
Securitization allows the bank to transfer credit risk, free up capital, and improve liquidity for further lending.
