Draft Frameworks for ‘Sale of Loan Exposures’ and ‘Securitisation of Standard Assets’ released by RBI
Part of: GS-Prelims and GS-III – Economy
- RBI has released draft Frameworks for ‘Sale of Loan Exposures’ and ‘Securitisation of Standard Assets’ recently.
- 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.