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Draft Frameworks for ‘Sale of Loan Exposures’ and ‘Securitisation of Standard Assets’ released by RBI

  • IASbaba
  • June 11, 2020
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Draft Frameworks for ‘Sale of Loan Exposures’ and ‘Securitisation of Standard Assets’ released by RBI

Part of: GS-Prelims and GS-III – Economy

In News:

  • RBI has released draft Frameworks for ‘Sale of Loan Exposures’ and ‘Securitisation of Standard Assets’ recently.

Key takeaways 

  • These draft guidelines are applicable to:
    • Scheduled Commercial Banks (excluding Regional Rural Banks)
    • All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI) 
    • All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs).
  •  Salient features of draft guidelines:
    • Only transactions that result in multiple tranches of securities being issued reflecting different credit risks will be treated as securitisation transactions.
    • Two capital measurement approaches have been proposed: Securitisation External Ratings Based Approach (SEC-ERBA) and Securitisation Standardised Approach (SEC-SA).
    • A special case of securitisation, called Simple, Transparent and Comparable (STC) securitisations, has also been prescribed. 
    • The definition of securitisation has been modified to allow single asset securitisations.
    • Securitisation of exposures purchased from other lenders has been allowed.
    • Standard Assets would be allowed to be sold by lenders through assignment or a loan participation contract. 
    • The Stressed Assets, however, would be allowed to be sold only through assignment or novation.

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