RBI releases Framework for sale of Loan Exposure and Securitization of Standard Assets

The Reserve Bank of India recently released draft framework for “Sale of Loan Exposures” and “Securitization of Standard Assets”.

Highlights

The guidelines issued are applicable to Scheduled Commercial Banks. This includes All India Financial Institutions such as EXIM Bank, NABARD, Non-Banking Financial Companies. The guidelines have also included recommendations of Committee on Development of Housing Finance Securitization Market in India that was chaired by Dr Harsh Vardhan. Also, the guidelines included the recommendations made by the Task Force set up on the Development of Secondary Market for Corporate Loans. Both the Committee and the Task Force were set up by the Reserve Bank of India.

Key Features of the Guidelines

  • The Guidelines has proposed Two Capital Measurement approach. This includes Securitisation External Ratings based approach and Securitisation Standardised Approach.
  • Simple Transparent Comparable Securitisation has been prescribed to define preferential capital treatment.
  • The new guidelines allowed Securitisation of exposures that are purchased from other lenders
  • The Stressed Assets under the new guidelines shall be sold only through novation and assignment.

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