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

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.