What changed
Previously, SCs/RCs had to realize financial assets within five years of acquisition per the 2003 guidelines. Now, for SRs that have already crossed that five-year mark, RBI grants a two-year extension as an interim relief.
What it means for you
This gives asset reconstruction companies more breathing room to resolve stressed assets without immediate redemption pressure. For banks holding these SRs, it delays potential losses but also extends the recovery timeline, impacting provisioning and capital planning.
What you must do
- Review your portfolio of SRs that have completed five years and assess the impact of the two-year extension on recovery timelines.
- Update internal provisioning models to reflect the extended resolution period for affected SRs.
- Engage with SCs/RCs to understand their revised resolution plans under the extended timeline.
- Monitor RBI's final policy on this matter, as this is an interim measure and may be revised.
Who it affects
All registered Securitisation Companies (SCs), All registered Reconstruction Companies (RCs), Banks and financial institutions holding security receipts
Does this extension apply to all SRs or only those issued after a certain date?
The extension applies only to SRs issued by SCs/RCs that have already completed five years from the date of asset acquisition. Other SRs continue to follow the original five-year timeline.
Is this a permanent change to the guidelines?
No, this is an interim measure announced in the Annual Monetary Policy Statement 2009-10. The final policy on extending the time frame is still under examination.
What happens if an SC/RC still cannot realize the asset within the extended two years?
The circular does not address that scenario. Banks should await further RBI guidance or engage with SCs/RCs for alternative resolution strategies.