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Draft Frameworks for Sale of Loan Exposures and Securitisation of Standard Assets- (Reserve Bank of India) (08 Jun 2020)

MANU/RPRL/0089/2020

Banking

The Reserve Bank has today placed on its website two draft documents for public comments - the 'Draft Framework for Securitisation of Standard Assets' and 'the Draft Comprehensive Framework for Sale of Loan Exposures'. These guidelines are applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks); All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI); and, all Non-Banking Financial Companies including Housing Finance Companies.

Aimed at development of a strong and robust securitisation market in India, while incentivising simpler securitisation structures, the revised guidelines attempt to align the regulatory framework with the Basel guidelines on securitisation that have come into force effective January 1, 2018. The revisions also take into account the recommendations of the Committee on Development of Housing Finance Securitisation Market in India (Chair: Dr. Harsh Vardhan) and the Task Force on the Development of Secondary Market for Corporate Loans (Chair: Shri T.N. Manoharan), which were set up by the Reserve Bank in May, 2019.

One of the key changes relates to differential treatment for Residential Mortgage Backed Securities (RMBS) compared to other securitisations in respect of prescriptions regarding minimum holding period (MHP), minimum retention requirements (MRR) and reset of credit enhancements.

Further, the regulatory guidelines for direct assignment transactions are proposed to be separated from the securitisation guidelines and subsumed under a separate set of Comprehensive Guidelines on Sale of Loan Exposures. These comprehensive guidelines harmonise the extant guidelines on sale of loan exposures issued through various circulars, and make them consistent with the changed resolution paradigm in the form of the Insolvency and Bankruptcy Code, 2016 ('IBC') and the Prudential Framework for Resolution of Stressed Assets issued vide circular dated June 7, 2019.

A detailed background and summary of key changes being proposed in the two draft guidelines are given in the attached brief.

The Reserve Bank requests comments from all stakeholders on the draft frameworks. In particular, responses are sought on certain specific consultation questions, which have also been flagged in the attached brief. The comments should preferably be supported, as far as possible, by quantitative assessments.

Tags : FRAMEWORKS   SALE   LOAN EXPOSURES  

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