What changed
RBI finalised securitisation guidelines after a discussion paper in April 2010 and revised draft guidelines in September 2011. The guidelines introduce a minimum lock-in period and minimum retention requirements for securitised loans to align originator and investor interests. They also cover prudential treatment of direct assignment of cash flows and underlying securities.
What it means for you
Banks and NBFCs must now hold a minimum portion of securitised loans on their books for a specified period, reducing risk transfer without skin in the game. This strengthens market discipline and investor confidence. Lenders need to adjust their securitisation structures and pricing to comply with the new retention and lock-in rules.
What you must do
- Review the enclosed Annex for detailed lock-in period and minimum retention requirements.
- Update internal securitisation policies and transaction documentation to comply with the new guidelines.
- Ensure all direct assignment of cash flows and underlying securities adhere to the prudential treatment outlined in Section B.
- Monitor for the separate circular on reset of credit enhancements in securitisation transactions.
Who it affects
All scheduled commercial banks (excluding RRBs and Local Area Banks), All-India term lending and refinancing institutions (Exim Bank, NABARD, NHB, SIDBI), NBFCs involved in securitisation
What is the effective date of these securitisation guidelines?
The guidelines were issued on May 7, 2012, and are effective from that date, as per the circular.
Do these guidelines apply to direct assignment of cash flows?
Yes, Section B of the guidelines covers prudential treatment for transfer of standard assets through direct assignment of cash flows and underlying securities.
Will there be further guidance on credit enhancements?
Yes, the circular states that a separate circular will be issued in due course on reset of credit enhancements in securitisation transactions.