The Reserve Bank of India (“RBI”) has released two draft documents for public comments to be submitted latest by June 30, 2020
(i) the Draft Framework for Securitisation of Standard Assets and
(ii) the Draft Comprehensive Framework for Sale of Loan Exposures.
The key features of the Draft Framework for Securitisation of Standard Assets as compared to the existing guidelines are as follows:
(i) Only transactions that result in multiple tranches of securities being issued reflecting different credit risks will be treated as securitisation transactions, and accordingly covered under these guidelines;
(ii) In line with the Basel III guidelines, two capital measurement approaches have been proposed: Securitisation External Ratings Based Approach (SEC-ERBA) and Securitisation Standardised Approach (SEC-SA).
(iii) Further, a special case of securitisation, called Simple, Transparent and Comparable (STC) securitisations, has been prescribed with clearly defined criteria and preferential capital treatment.
(iv) The definition of securitisation has been modified to allow single asset securitisations. Securitisation of exposures purchased from other lenders has been allowed.
(v) Carve outs have been provided for Residential Mortgage Backed Securities (RMBS) in prescriptions regarding MHP, MRR and reset of credit enhancements.
(vi) A quantitative test for significant transfer of credit risk has been prescribed for derecognition for the purpose of capital requirements, independent of the accounting derecognition
The key features of the Draft Comprehensive Framework for Sale of Loan Exposures as compared to the existing guidelines are as follows:
(i) Sale of standard assets may be by assignment, novation or a loan participation contract (either funded participation or risk participation) whereas the sale of stressed assets may be by assignment or novation.
(ii) Direct assignment transactions shall be subsumed as a special case of these guidelines.
(iii) Requirement of MRR for sale of loans has been done away with.
(iv) The price discovery process has been deregulated to be as per the lenders’ policy.
(v) Stressed assets may be sold to any entity that is permitted to take on loan exposures by its statutory or regulatory framework.
(vi) Some of the existing conditions for sale of NPAs have been rationalised.
For more information please see below link:
