RBI on Monday proposes easier Securitisation norms This includes amendments to the definition of securitisation. In addition, it includes reducing the share of the originating bank or non-banking finance company to securitised assets.
According to the RBI, the present definition of securitisation will allow for single asset securitisation. It permitted the Securitisation of risks purchased from other lenders
The Reserve Bank introduced a comprehensive draft of rules regarding the sale of loans. These can be regular paying loans or stuck loans or sub-standard loans (NPAs)
Only transactions that result in multiple parts of securities being issued reflecting different credit risks will be treated as securitisation transactions
RBI also reduce the Minimum Retention Rate (MRR) for residential mortgage backed securities to 5% of the loans. According to change, Institutions can also securitise loans purchased from other lenders.
Banks or NBFCs should have a continuous flow in the performance securitised assets is a prime objective of designing MRR. This also check the capabilities of doing proper due diligence of loan which is to be securitised
RBI also mentioned the minimum holding period (MHP) for residential mortgage backed securities. The period is for six months or up to six installments whichever is later
RBI guidelines have also declared two capital measurement approaches subject to Basel III norms :
- Securitisation External Ratings Based Approach (SEC-ERBA)
- Securitisation Standardised Approach (SEC-SA)
RBI has also introduced a special case of securitisation, called Simple, Transparent and Comparable (STC) securitisations.
RBI has also allowed the sale of standard loan either on slump sale basis or through assignment. We can also use the method of loan participation contract to sell standard loans. But we can sell stressed loans only through an assignment or slump sale basis
These guidelines are applicable to all banks, NBFCs, financial institutions like NABARD, NHB, EXIM Bank, and SIDBI, etc.
That’s all for todays news – RBI proposes easier Securitisation norms. If you want to know about SARFAESIA then visit here