RBI's 2025 Securitisation Directions: Key Changes for Banks

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Short title and commencement B. Applicability C. Definitions Chapter II - General requirements for securitisation A. Assets eligible for securitisation B. Minimum Retention Requirement (MRR) C. Origination Standards D. Payment priorities and observability E. Limit on Total Retained Exposures by Originators F. Issuance and Listing G. Conditions to be satisfied by the special purpose entity H. Representations and Warranties I. Accounting Provisions Chapter III - Simple, transparent and comparable (STC) securitisations A. STC Securitisations- Criteria for regulatory capital purposes B. Disclosure and Prudential Oversight for STC Securitisations Chapter IV - Provision of facilities supporting securitisation structures A. General Conditions B. Credit Enhancement Facilities C. Reset of credit enhancements D. Liquidity Facilities E. Underwriting Facilities F. Servicing Facilities Chapter V - Requirements to be met by a bank who is an investor in securitisation exposures A. Due Diligence Requirements B. Stress Testing C. Credit monitoring and valuation Chapter VI - Capital requirements for Securitisation exposures and Disclosures Norms A. Capital requirements for securitisation exposures B. Disclosures Chapter VII - Repeal and other provisions A. Repeal and saving Application of other laws not barred B. Interpretations Annex I Introduction Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. While complicated and opaque securitisation structures could be undesirable from the point of view of financial stability, prudentially structured securitisation transactions can be an important facilitator in a well-functioning financial market in that it improves risk distribution and liquidity of lenders in originating fresh loan exposures. Accordingly, in exercise of the powers conferred by Sections 21 and 35A of the Banking Regulation Act,1949, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest and in the interest of banking policy so to do, hereby, issues the Directions hereinafter specified. Chapter I- Preliminary A. Short title and commencement 1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Securitisation Transactions) Directions, 2025. 2. These Directions shall come into effect on the day these are placed on the official website of the Reserve Bank of India. B. Applicability 3. These Directions shall be applicable to commercial banks (hereinafter collectively referred to as 'banks' and individually as a 'bank'). For the purpose of these Directions, ‘Commercial Banks’ mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949. C. Definitions 4. For the purpose of these directions, the following definitions apply: (1) “bankruptcy remote" means the unlikelihood of an entity being subjected to voluntary or involuntary bankruptcy proceedings, including by the originator or the creditors to the originator; (2) “clean-up call” means an option that permits the originator to call the underlying exposures or the securitisation exposures when the outstanding value of the underlying exposures falls below a pre-defined threshold, thereby extinguishing the remaining securitisation exposures of all parties; (3) “credit enhancement” means a contractual arrangement in which an entity mitigates the credit risk associated with a securitisation exposure and, in substance, provides some degree of added protection to other parties to the transaction so as to mitigate the credit risk of their securitisation exposures; (4) “early amortisation provision” means a mechanism that, once triggered, accelerates the reduction of the investor’s interest in underlying exposures of a securitisation structure and allows investors to be paid out prior to the originally stated maturity of the securitisation notes issued; (5) “excess spread (or future margin income)” means the difference between the gross finance charge collections and other income received by the special purpose entity (SPE), and securitisation notes interest, servicing fees, charge-offs, and other senior SPE expenses. (6) “exposure amount” of a securitisation exposure means the sum of the on-balance sheet amount of the exposure or carrying value – which takes into account purchase discounts and writedowns/specific provisions the bank took on this securitisation exposure – and the off-balance sheet exposure amount, where applicable. (7) "first loss facility" means the first level of financial support provided by the originator or a third party to improve the creditworthiness of the securitisation notes issued by the SPE such that the provider of the facility bears the part or all of the risks associated with the assets held by the SPE; (8) “implicit support” means the protection arising when a bank provides support to a securitisation in excess of its predetermined contractual obligation; (9) “interest-only strip (I/O)” means an on-balance sheet asset of the originator that represents a valuation of cash flows related to future margin income; Provided that if the interest-only strip is subordinated, it shall serve the purpose of credit enhancement and shall be referred to as credit-enhancing interest-only strip. (10) “Lenders” shall mean the following entities unless specifically mentioned otherwise: (i) Scheduled Commercial Banks (excluding Regional Rural Banks); (ii) All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI); (iii) Small Finance Banks (as permitted under Reserve Bank of India (Small Finance Banks – Securitisation Transactions) Directions, 2025 ); and, (iv) All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs). (11) “mortgage backed securities” mean securitisation notes issued by the special purpose entity against underlying exposures that are all secured by commercial or residential real estate mortgages; (12) "originator" refers to a lender that transfers from its balance sheet a single asset or a pool of assets to an SPE as a part of a securitisation transaction and would include other entities of the consolidated group to which the lender belongs; Explanation: Originator may not be the same lender which had initially sanctioned one or more of the exposures underlying a securitisation transaction since loans purchased from lenders can also be sold to SPEs for the purpose of securitisation. (13) “overcollateralisation” means any form of credit enhancement by virtue of which underlying exposures are posted in value which is higher than the value of the securitisation notes; (14) “replenishment” means the process of using the cash flows from the securitised assets to acquire more assets in the manner disclosed upfront in the prospectus of the scheme, which will continue for a pre-announced replenishment period, following which the securitisation structure switches to an amortising one; Provided that assets purchased during the replenishment period shall be purchased from the same originator(s) of the assets underlying the securitisation notes already issued under the scheme. (15) “residential mortgage backed securities (RMBS)” mean securitisation notes issued by the special purpose entity against underlying exposures that are all secured by residential mortgages; (16) “re-securitisation exposure” means a securitisation exposure where at least one of the underlying exposures is a securitisation exposure; (17) “standard assets” for the purpose of these directions shall mean exposures which are not classified as non-performing asset; (18) “second loss facility” means a second level of financial support providing a second (or subsequent) tier of protection to the securitisation notes issued by the special purpose entity against potential losses not covered by the first loss facility, and is invoked only after the first loss facility has been drawn down and repudiated or exhausted, or the first loss provider is under insolvency or bankruptcy or liquidation; (19) “securitisation” means a structure where a pool of assets are transferred by an originator to a SPE and the cash flow from this pool of assets is used to service securitisation exposures of at least two different tranches reflecting different degrees of credit risk, where payments to the investors depend upon the performance of the specified underlying exposures, as opposed to being derived from an obligation of the originator; Provided that the pool containing a single asset eligible to be securitised is also permitted. Provided further that a securitisation structure may have tranches with different maturities. (20) “securitisation exposures” include but are not restricted to exposures to securitisation notes issued by the special purpose entity including asset-backed securities and mortgage-backed securities, credit enhancements, underwriting commitments, liquidity facilities, interest rate or currency swaps, credit derivatives and tranched cover; Explanation: Reserve accounts, such as cash collateral accounts, which is earmarked to absorb credit losses arising from the securitisation and is recorded as an asset by the originator must also be treated as securitisation exposures. (21) “securitisation notes” mean securities issued by the special purpose entity as a part of securitisation; (22) “senior tranche” means a tranche which is effectively backed or secured by a first claim on the entire amount of the assets in the underlying securitised pool; Provided that where all tranches above the first-loss piece are rated, the most highly rated position would be treated as a senior tranche. Provided that when there are several tranches that share the same rating, only the most senior tranche in the cash flow waterfall would be treated as senior (unless the only difference among them is the effective maturity). Provided that when the different ratings of several senior tranches only result from a difference in maturity, all of these tranches should be treated as senior tranches. (23) “special purpose entity (SPE)” means a company, trust or other entity organised for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the credit risk of an originator; Explanation: Any reference to SPE in these directions would also refer to the trust settled or declared by the SPE as a part of the process of securitisation. (24) “subordinate tranche” means any tranche that is junior to the senior tranche(s); (25) “synthetic securitisation” means a structure where credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or credit guarantees that serve to hedge the credit risk of the portfolio which remains on the balance sheet of a bank; Explanation: The above definition does not include the use of instruments permitted to banks for hedging under the current regulatory instructions. (26) “tranche” means a contractually established segment of the credit risk associated with an exposure or a pool of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in another segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments; Explanation: Securitisation notes issued by the SPE and credit enhancement facilities available shall be treated as tranches. Chapter II - General requirements for securitisation A. Assets eligible for securitisation 5. A bank, including overseas branches of Indian banks, shall not undertake the securitisation activities or assume securitisation exposures as mentioned below: (1) Re-securitisation exposures; (2) Structures in which short term instruments such as commercial paper, which are periodically rolled over, are issued against long term assets held by a SPE; (3) Synthetic securitisation; and (4) Securitisation with the following assets as underlying: (i) revolving credit facilities as underlying – These involve underlying exposures where the borrower is permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e.g. credit card receivables and cash credit facilities); (ii) Restructured loans and advances which are in the specified period; (iii) Exposures to other lending institutions; (iv) Refinance exposures of AIFIs; (v) Loans with bullet payments of both principal and interest as underlying; and (vi) Loans with residual maturity of less than 365 days; Provided that loans with tenor up to 24 months extended to individuals for agricultural activities (as described in Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025 ) where both interest and principal are due only on maturity and trade receivables with tenor up to 12 months discounted/ purchased by banks from their borrowers shall be eligible for securitisation. However, only those loans/ receivables will be eligible for securitisation where a borrower (in case of agricultural loans) /a drawee of the bill (in case of trade receivables) has fully repaid the entire amount of last two loans/ receivables (one loan, in case of agricultural loans with maturity extending beyond one year) within 90 days of the due date. In case such assets are securitised, the investors in the securitisation notes issued against them should be able to verify the compliance of the underlying asset with the above requirement. 6. It is clarified that securitisation of exposures held by overseas branches of Indian banks shall not contravene any provision/s of extant legal/regulatory framework, including Foreign Exchange Management Act, 1999 and the rules or regulations thereunder. 7. Subject to the above, all other on-balance sheet exposures of originators, which are in the nature of loans and advances and are classified as Standard, are eligible as underlying assets in a securitisation transaction. 8. The originators of such exposures shall have satisfied the Minimum holding period (MHP) requirement as defined in Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025 . Provided that for commercial or residential real estate mortgages, MHP shall be counted from the date of full disbursement of the loan, or registration of security interest with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), whichever is later. 9. The MHP will be applicable to individual loans in the underlying pool of securitised loans. MHP will not be applicable to loans referred to in the proviso to Paragraph 5. 10. The transactions undertaken in terms of these directions must not contravene the rights of underlying obligors. To ensure compliance with this stipulation, enabling clauses must be included in the contract between originator and servicing agent and all necessary consent from obligors (including from third parties), where necessary as per the respective contracts, should have been obtained. B. Minimum Retention Requirement (MRR) 11. The MRR is primarily designed to ensure that the originators have a continuing stake in the performance of securitised assets so as to ensure that they carry out proper due diligence of loans to be securitised. The originators should adhere to the MRR as detailed below while securitising loans leading to issuance of securitisation notes, other than for residential mortgage backed securities: (1) For underlying loans with original maturity of 24 months or less, the MRR shall be 5 per cent of the book value of the loans being securitised. (2) For underlying loans with original maturity of more than 24 months as well as loans with bullet repayments, as mentioned in proviso to Paragraph 5, the MRR shall be 10 per cent of the book value of the loans being securitised. 12. In the case of residential mortgage backed securities, the MRR for the originator shall be five per cent of the book value of the loans being securitised, irrespective of the original maturity. 13. The MRR shall be retained by the originator as follows: (1) Up to 5 per cent of the book value of loans being securitised: (i) First loss facility, if available; (ii) If first loss facility is not available, or where retention of the entire first loss facility amounts to less than 5 per cent, balance through retention of equity tranche; (iii) Where retention of the entire first loss facility, if available, and equity tranche amounts to less than 5 per cent, balance pari passu in remaining tranches sold to investors. (2) Greater than 5 per cent of the book value of loans being securitised: (i) First loss facility, or equity tranche or any other tranche sold to investors, in any combination thereof. Explanation: It is clarified that first loss facility for this purpose shall not include overcollateralization available, if any. 14. Investment in the Interest Only Strip representing the Excess Interest Spread/ Future Margin Income, whether or not subordinated, will not be counted towards the MRR. 15. MRR should not be reduced either through hedging of credit risk or selling or encumbering the retained interest. (1) MRR has to be maintained by the originating bank itself and not by any of its group entities. The form of MRR should not change during the life of securitisation. (2) The MRR as a percentage of unamortised principal should be maintained on an ongoing basis except for reduction of retained exposure due to repayment or through the absorption of losses. Specifically, in cases of securitisations featuring replenishment period, MRR should be maintained not only at the initiation of the securitisation but also at the end of the replenishment period. 16. For complying with the MRR under these guidelines, bank should ensure that proper documentation in accordance with law is made. C. Origination Standards 17. Underwriting standards for exposures securitised should not be less stringent than those applied to exposures retained on the balance sheet of the originator. Where underwriting standards change between the loan origination and till all the claims associated with securitised note are paid-off, the originator should disclose to the entities having securitisation exposures the timing and purpose of such changes. 18. In cases of securitisation of exposures purchased by originator from other lenders, the requirements applicable for underwriting standards shall apply to the standards of due diligence process adopted by the originator which may include verification of sufficiency and consistency of loan origination process of the lenders from whom the exposures were purchased by the originator. D. Payment priorities and observability 19. To prevent investors being subjected to unexpected repayment profiles during the life of a securitisation, the priorities of payments for all liabilities in all circumstances should be clearly defined at the time of securitisation and appropriate legal comfort regarding their enforceability should be provided. 20. To help provide investors with full transparency over any changes to the cash flow waterfall, payment profile or priority of payments that might affect a securitisation, all triggers affecting the cash flow waterfall, payment profile or priority of payments of the securitisation should be clearly and fully disclosed in offer documents and in investor reports, with information in the investor report that clearly identifies the breach status in respect of expected cash flows to the note holders, the ability for the breach to be reversed and the consequences of the breach. 21. To ensure rights and interest of the securitisation note holders are protected, definitions, policies and remedies pertaining to the contours and caveats around the performance of the underlying loans must be suitably communicated. Further, the rights and control of the securitisation note holders must be documented to account for all circumstances, including insolvency of all entities involved in securitisation, such as the originator SPE, etc. Full disclosure and supporting documentation regarding legal and financial risk factors must be made available to prospective and existing investors within a reasonable period of time, on an ongoing or on demand basis. 22. Securitisations featuring a replenishment period should include provisions for appropriate early amortisation events and/or triggers of termination of the replenishment period, including, notably: (1) deterioration in the credit quality of the underlying exposures; (2) a failure to acquire sufficient new underlying exposures of similar credit quality; and (3) the occurrence of an insolvency-related event with regard to the originator(s). 23. In the event actions of associated institutional stakeholders (originator, SPE, servicing agent, credit enhancement provider and others) that are not prohibited in this framework, result in material alteration of the risk profile of the securitisation notes at any point, the originator shall ensure that same is adequately informed and disclosed to investors, credit rating agencies and other service providers within a maximum time frame of 14 calendar days. E. Limit on Total Retained Exposures by Originators 24. The total exposure of an originator to the securitisation exposures belonging to a particular securitisation structure or scheme should not exceed 20 per cent of the total securitisation exposures created by such structure or scheme. However, the exposure of originators to credit enhancing interest only strip shall be excluded from this limit. 25. Credit exposure on account of interest rate swaps/currency swaps entered into with the SPE will be excluded from this limit. 26. The 20 per cent limit on total retained exposures will not be deemed to have been breached if it is exceeded due to amortisation of securitisation notes issued. F. Issuance and Listing 27. The minimum ticket size for issuance of securitisation notes shall be ₹ 1 crore. Explanation: Ticket size, for the purpose of these directions, refers to the size of investment by a single investor. 28. The listing of securitisation notes, especially in respect of certain product class, such as RMBS, and/or generally above a certain threshold is recommended, though not mandatory. In any case, any offer of securitisation notes to fifty or more persons in an issuance would be listed in terms of Securities and Exchange Board of India (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 as amended from time to time. G. Conditions to be satisfied by the special purpose entity 29. The SPE should meet the following criteria to enable the originator to apply the guidelines on capital adequacy and other aspects as prescribed in these directions with regard to the securitisation exposures assumed by it: (1) Any transaction between the originator and the SPE should be strictly on arm’s length basis. (2) The SPE and the trustee should not resemble in name or imply any connection or relationship with the originator of the assets in its title or name. (3) The originator should not have any ownership, proprietary or beneficial interest in the SPE except those specifically permitted under these directions. The originator shall not hold any share capital in the SPE. (4) The originator should not have more than one representative, without veto power, on the board of the SPE provided the board has at least four members and independent directors are in majority. (5) If the SPE is set up as a trust, then: (i) The originator should not exercise control, directly or indirectly, over the SPE and the trustees, and shall not settle the trust deed, if any. (ii) The originator shall not have any ownership, proprietary or beneficial interest in the trustees. (iii) The SPE should be bankruptcy remote and non-discretionary. (iv) The trust deed, if any, should lay down, in detail, the functions to be performed by the trustee, their rights and obligations as well as the rights and obligations of the investors in relation to the securitised assets. The trust deed should not provide for any discretion to the trustee as to the manner of disposal and management or application of the trust property. In order to protect their interests, investors should be empowered in the trust deed to change the trustee at any point of time. (v) The trustee should only perform trusteeship functions in relation to the SPE and should not undertake any other business with the SPE. (vi) A copy of the trust deed, if any, and the accounts and statement of affairs of the SPE should be made available by the originator and/or other lenders, to the RBI, if required to do so. (6) The originator shall not support the losses of the SPE except under the facilities explicitly permitted under these directions and shall also not be liable to meet the recurring expenses of the SPE. (7) The SPE should make it clear to the investors in the securitization notes issued by it that these securitisation notes are not insured and do not represent deposit liabilities of the originator, servicer or trustees. 30. In cases where the originator has purchased loans from another lender, the provisions of Paragraph 29 shall apply to the lenders from whom the originator has purchased the exposures, as well. Provided that for the purpose of sub-paragraph (4) of Paragraph 29, only one of either the originator or the lenders from whom loans were purchased by the originator, may have the representative on the board of the SPE. H. Representations and Warranties 31. An originator that sells assets to SPE may make representations and warranties concerning those assets. The originator will hold capital against such representations and warranties if any of the following conditions are not satisfied: (1) Any representation or warranty is provided only by way of a formal written agreement. (2) The originator undertakes appropriate due diligence before providing or accepting any representation or warranty. (3) The representation or warranty refers to an existing state of facts that is capable of being verified by the originator at the time the assets are sold. (4) The representation or warranty is not open-ended and, in particular, does not relate to the future creditworthiness of the assets, the performance of the SPE and/or the securitisation notes the SPE issues. (5) The exercise of a representation or warranty, requiring an originator to replace assets (or any parts of them) sold to a SPE, must be: (i) undertaken within 120 days of the transfer of assets to the SPE; and (ii) conducted on the same terms and conditions as the original sale. (6) An originator that is required to pay damages for breach of representation or warranty can do so provided the agreement to pay damages meets the following conditions: (i) the onus of proof for breach of representation or warranty remains at all times with the party so alleging; (ii) the party alleging the breach serves a written notice of claim, specifying the basis for the claim; and (iii) damages are limited to losses directly incurred as a result of the breach. (7) An originator should notify RBI (Department of Supervision) of all instances where it has agreed to replace assets sold to SPE or pay damages arising out of any representation or warranty. I. Accounting Provisions 32. Originators shall sell assets to SPE only on cash basis and the sale consideration should be received not later than the transfer of the asset to the SPE. Further, there should not be gap of more than 30 days between transfer of the assets and the issuance of securitisation notes. 33. Any loss, profit or premium realised at the time of the sale should be accounted accordingly and reflected in the Profit & Loss account for the accounting period during which the sale is completed. 34. The following treatment shall be applicable in the case of unrealised gains arising out of sale of underlying assets to the SPE such as that associated with expected future margin income (represented by interest-only strips or otherwise): (1) The unrealised gains should not be recognised in Profit and Loss account; instead the bank shall hold the unrealised profit under an accounting head styled as “Unrealised Gain on Loan Transfer Transactions”. (2) The profit may be recognised in Profit and Loss Account only when such unrealised gains associated with expected future margin income is redeemed in cash. However, if the unrealised gains associated with expected future margin income is credit enhancing (for example, in the form of credit enhancing interest-only strip), the balance in this account may be treated as a provision against potential losses incurred. (3) In the case of amortising credit-enhancing interest-only strip, a bank would periodically receive in cash, only the amount which is left after absorbing losses, if any, supported by the credit-enhancing interest-only strip. On receipt, this amount may be credited to Profit and Loss account and the amount equivalent to the amortisation due may be written-off against the “Unrealised Gain on Loan Transfer Transactions” account bringing down the book value of the credit-enhancing interest-only strip in the bank’s books. (4) In the case of a non-amortising credit-enhancing interest-only strip, as and when a bank receives intimation of charging-off of losses by the SPE against the credit-enhancing interest-only strip, it may write-off equivalent amount against “Unrealised Gain on Loan Transfer Transactions” account and bring down the book value of the credit-enhancing interest-only strip in the bank’s books. The amount received in final redemption value of the credit-enhancing interest-only strip received in cash may be taken to Profit and Loss account. Chapter III - Simple, transparent and comparable (STC) securitisations A. STC Securitisations- Criteria for regulatory capital purposes 35. Only securitisations that additionally satisfy all the criteria listed below fall within the scope of the STC framework. The said criteria are based on the prescriptions of the Basel Committee on Banking Supervision. Exposures to securitisations that are STC-compliant can be subject to the alternative capital treatment as determined by Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 . A.1 Nature of Assets 36. The assets underlying the securitisation should be homogeneous credit claims or receivables eligible under Paragraphs 5 to 10. Credit claims or receivables should have contractually identified periodic payment streams relating to principal, interest, or principal and interest payments. Any referenced interest payments or discount rates should be based on an external benchmark. 37. For this purpose, the “homogeneity” criterion should be assessed taking into account the following principles: (1) The nature of assets should be such that investors would not need to analyse and assess materially different legal and/or credit risk factors and risk profiles when carrying out risk analysis and due diligence checks of each asset. (2) Homogeneity should be assessed on the basis of common risk drivers, including similar risk factors and risk profiles. (3) Credit claims or receivables included in the securitisation should have standard obligations, in terms of rights to payments and/or income from assets and that result in a periodic and well-defined stream of payments to investors. (4) Repayment of noteholders should mainly rely on the principal and interest proceeds from the securitised assets. Partial reliance on refinancing or resale of the asset securing the exposure may occur provided that refinancing is sufficiently distributed within the pool and the residual values on which the transaction relies are sufficiently low and that the reliance on refinancing is thus not substantial. A.2 Asset performance history 38. In order to provide investors with sufficient information on an asset class to conduct appropriate due diligence and access to a sufficiently rich data set to enable a more accurate calculation of expected loss in different stress scenarios, verifiable loss performance data, such as delinquency and default data, should be available for credit claims and receivables with substantially similar risk characteristics to those being securitised, for a time period long enough to permit meaningful evaluation by investors. 39. Sources of and access to data and the basis for claiming similarity to credit claims or receivables being securitised should be clearly disclosed to all market participants. 40. The originator of the securitisation or the original lending bank of the exposures that are securitised, as the case may be, must have sufficient experience in originating exposures similar to those securitised. For capital purposes, investors must determine whether the performance history of the originator for substantially similar claims or receivables to those being securitised has been established for an "appropriately long period of time”. This performance history must be no shorter than a period of seven years for non-retail exposures. For retail exposures, the minimum performance history is five years. A.3 Payment status 41. Credit claims or receivables being transferred to the SPE may not, at the time of inclusion in the pool, include obligations that are in default or delinquent or obligations for which the originator, servicer and other parties with a fiduciary responsibility to the securitisation note holders are aware of evidence indicating a material increase in expected losses or of enforcement actions. 42. To ensure that the quality of the securitised credit claims and receivables are not affected by changes in underwriting standards, the originator should demonstrate to investors that any credit claims or receivables being transferred to the SPE have been originated in the ordinary course of the originator’s business to materially non-deteriorating underwriting standards. 43. The originator should verify that the underlying credit claims or receivables meet the following conditions: (1) the credit claims or receivables is not under the monitoring period as defined in defined in the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025 ; (2) the obligor does not have a credit assessment by a credit rating agency or a credit score indicating a significant risk of default; and (3) the credit claim or receivable is not subject to a dispute between the obligor and the originator. 44. The assessment of these conditions should be carried out by the originator no earlier than 45 days prior to the date on which the securitisation comes into effect. Additionally, at the time of this assessment, there should, to the best knowledge of the originator, be no evidence indicating likely deterioration in the performance status of the credit claim or receivable. A.4 Consistency of underwriting 45. Underwriting standards should not be less stringent than those applied to credit claims and receivables retained on the balance sheet. In all circumstances, all credit claims or receivables must be originated in accordance with sound and prudent underwriting criteria based on an assessment that the obligor has the “ability and volition to make timely payments” on its obligations. 46. The originator of the securitisation is expected, where underlying credit claims or receivables have been acquired from third parties, to review the underwriting standards (i.e. to check their existence and assess their quality) of these third parties and to ascertain that they have assessed the obligors’ “ability and volition to make timely payments on obligations”. A.5 Asset selection and transfer 47. While assets transferred to a securitisation will be subject to defined criteria as approved by the Board of the originator, the performance of the securitisation should not rely upon the ongoing selection of assets through active management on a discretionary basis of the securitisation’s underlying portfolio. Explanation: As long as they are not actively selected or otherwise cherry-picked on a discretionary basis, the addition of credit claims or receivables during the replenishment periods or their substitution or repurchasing due to the breach of representations and warranties do not represent active portfolio management. 48. Credit claims or receivables transferred to a securitisation should satisfy clearly defined eligibility criteria. Credit claims or receivables transferred to a securitisation after the date on which securitisation becomes effective may not be actively selected, actively managed or otherwise cherrypicked on a discretionary basis. 49. The securitisation should be such that the underlying credit claims or receivables: (1) are enforceable against the obligor and their enforceability is included in the representations and warranties of the originator; (2) are beyond the reach of the seller, its creditors or liquidators and are not subject to material recharacterisation or clawback risks; (3) are not effected through credit default swaps, derivatives or guarantees, but by a transfer of the credit claims or the receivables to the securitisation; (4) demonstrate effective recourse to the ultimate obligation for the underlying credit claims or receivables and are not a securitisation of other securitisations; and (5) for regulatory capital purposes, an independent third-party legal opinion must support the claim that the transfer of assets under the applicable laws comply with the above sub-paragraphs. 50. The originator should provide representations and warranties that the credit claims or receivables being transferred to the SPE are not subject to any condition or encumbrance that can be foreseen to adversely affect enforceability in respect of collections due. 51. To assist investors in conducting appropriate due diligence prior to investing in a new offering, sufficient loan-level data in accordance with applicable laws or, in the case of granular pools, summary stratification data on the relevant risk characteristics of the underlying pool should be available to potential investors before pricing of a securitisation. A.6 Initial and ongoing data 52. To assist investors in conducting appropriate and ongoing monitoring of their investments’ performance and so that investors that wish to purchase a securitisation in the secondary market have sufficient information to conduct appropriate due diligence, timely loan-level data in accordance with applicable laws or granular pool stratification data on the risk characteristics of the underlying pool and standardised investor reports should be readily available to current and potential investors at least quarterly throughout the life of the securitisation. Cut-off dates of the loan-level or granular pool stratification data should be aligned with those used for investor reporting. 53. To provide a level of assurance that the reporting of the underlying credit claims or receivables is accurate and that the underlying credit claims or receivables meet the eligibility requirements, the initial portfolio should be reviewed for conformity with the eligibility requirements by an appropriate legally accountable and independent third party. Explanation: The review should confirm that the credit claims or receivables transferred to the SPE meet the portfolio eligibility requirements. The review could, for example, be undertaken on a representative sample of the initial portfolio, with the application of a minimum confidence level. The verification report need not be provided but its results, including any material exceptions, should be disclosed in the initial offering documentation. A.7 Redemption cash flows 54. To help ensure that the underlying credit claims or receivables do not need to be refinanced over a short period of time, there should not be a reliance on the sale or refinancing of the underlying credit claims or receivables in order to repay the liabilities of the SPE, unless the underlying pool of credit claims or receivables is sufficiently granular and has sufficiently distributed repayment profiles. Rights to receive income from the assets specified to support redemption payments should be considered as eligible credit claims or receivables in this regard. A.8 Currency and interest rate asset and liability mismatches 55. To reduce the payment risk arising from the different interest rate and currency profiles of assets and liabilities and to improve investors’ ability to model cash flows, interest rate and foreign currency risks should be appropriately mitigated at all times, and if any hedging transaction is executed the transaction should be documented according to industry-standard master agreements. Only derivatives used for genuine hedging of asset and liability mismatches of interest rate and / or currency should be allowed. (1) For capital purposes, the term “appropriately mitigated” should be understood as not necessarily requiring a completely perfect hedge. The appropriateness of the mitigation of interest rate and foreign currency through the life of the transaction must be demonstrated by making available to potential investors, in a timely and regular manner, quantitative information including the fraction of notional amounts that are hedged, as well as sensitivity analysis that illustrates the effectiveness of the hedge under extreme but plausible scenarios. (2) If hedges are not performed through derivatives, then those risk-mitigating measures are only permitted if they are specifically created and used for the purpose of hedging an individual and specific risk, and not multiple risks at the same time (such as credit and interest rate risks). Non-derivative risk mitigation measures must be fully funded and available at all times. A.9 Payment priorities and observability 56. Investor reports should contain information that allows investors to monitor the evolution over time of the indicators that are subject to triggers. Any triggers breached between payment dates should be disclosed to investors on a timely basis in accordance with the terms and conditions of all underlying transaction documents. 57. Following the occurrence of a performance-related trigger, an event of default or an acceleration event, the securitisation positions should be repaid in accordance with a sequential amortisation priority of payments, in order of tranche seniority, and there should not be provisions requiring immediate liquidation of the underlying assets at market value. 58. To assist investors in their ability to appropriately model the cash flow waterfall of the securitisation, the originator should make available to investors, both before pricing of the securitisation and on an ongoing basis, a liability cash flow model or information on the cash flow provisions allowing appropriate modelling of the securitisation cash flow waterfall. 59. To ensure that debt forgiveness, loan moratoriums, payment holidays, restructurings and other asset performance remedies can be clearly identified, policies and procedures, definitions, remedies and actions relating to delinquency, default or restructuring of underlying debtors should be provided in clear and consistent terms, such that investors can clearly identify debt forgiveness, loan moratoriums, payment holidays, restructuring and other asset performance remedies on an ongoing basis. A.10 Voting and enforcement rights 60. To help ensure clarity for note holders of their rights and ability to control and enforce on the underlying credit claims or receivables, upon insolvency of the originator, all voting and enforcement rights related to the credit claims or receivables should be transferred to the SPE. Investors’ rights in the securitisation should be clearly defined in all circumstances, including the rights of senior versus junior note holders. A.11 Documentation disclosure and legal review 61. To help investors to fully understand the terms, conditions, legal and commercial information prior to investing in a new offering and to ensure that this information is set out in a clear and effective manner for all programmes and offerings, sufficient initial offering and draft underlying documentation should be made available to investors (and readily available to potential investors on a continuous basis) within a reasonably sufficient period of time prior to pricing, or when legally permissible, such that the investor is provided with full disclosure of the legal and commercial information and comprehensive risk factors needed to make informed investment decisions. Explanation: For the purpose of this paragraph, initial offering documentation would typically mean draft offering circular, draft offering memorandum, draft offering document or draft prospectus, such as a “red herring” whereas draft underlying documentation would typically mean asset sale agreement, assignment, novation or transfer agreement; servicing, backup servicing, administration and cash management agreements; trust/management deed, security deed, agency agreement, account bank agreement, guaranteed investment contract, incorporated terms or master trust framework or master definitions agreement as applicable; any relevant inter-creditor agreements, swap or derivative documentation, subordinated loan agreements, start-up loan agreements and liquidity facility agreements; and any other relevant underlying documentation, including legal opinions. 62. Final offering documents should be available from the closing date and all final underlying transaction documents shortly thereafter. These should be composed such that readers can readily find, understand and use relevant information. A.12 Fiduciary and contractual responsibilities 63. To ensure that all the documentation of securitisation transactions has been subject to appropriate review prior to publication, the terms and documentation of the securitisation should be reviewed by an appropriately experienced third party legal practice, such as a legal counsel already instructed by one of the transaction parties. Investors should be notified in a timely fashion of any changes in such documents that have an impact on the structural risks in the securitisation. 64. To help ensure servicers have extensive workout expertise, thorough legal and collateral knowledge and a proven track record in loss mitigation, such parties should be able to demonstrate expertise in the servicing of the underlying credit claims or receivables, supported by a management team with extensive industry experience. The servicer should at all times act in accordance with reasonable and prudent standards. 65. Policies, procedures and risk management controls should be well documented and adhere to good market practices and relevant regulatory regimes. There should be strong systems and reporting capabilities in place. In assessing whether “strong systems and reporting capabilities are in place” for capital purposes, well documented policies, procedures and risk management controls, as well as strong systems and reporting capabilities, may be substantiated by a third-party review. 66. The party or parties with fiduciary responsibility should act on a timely basis in the best interests of the securitisation note holders, and both the initial offering and all underlying documentation should contain provisions facilitating the timely resolution of conflicts between different classes of note holders by the trustees, to the extent permitted by applicable law. 67. The party or parties with fiduciary responsibility to the securitisation and to investors should be able to demonstrate sufficient skills and resources to comply with their duties of care in the administration of the SPE. 68. To increase the likelihood that those identified as having a fiduciary responsibility towards investors as well as the servicer execute their duties in full on a timely basis, remuneration should be such that these parties are incentivised and able to meet their responsibilities in full and on a timely basis. A.13 Transparency to investors 69. To help provide full transparency to investors, assist investors in the conduct of their due diligence and to prevent investors being subject to unexpected disruptions in cash flow collections and servicing, the contractual obligations, duties and responsibilities of all key parties to the securitisation, both those with a fiduciary responsibility and of the ancillary service providers, should be defined clearly both in the initial offering and all underlying documentation. Explanation: For the purpose of this paragraph, “initial offering” and “underlying transaction documentation” shall have the same meaning as in the explanation to the Paragraph 61 above. 70. Provisions should be documented for the replacement of servicers, bank account providers, derivatives counterparties and liquidity providers in the event of failure or non-performance or insolvency or other deterioration of creditworthiness of any such counterparty to the securitisation. 71. To enhance transparency and visibility over all receipts, payments and ledger entries at all times, the performance reports to investors should distinguish and report the securitisation’s income and disbursements, such as scheduled principal, redemption principal, scheduled interest, prepaid principal, past due interest and fees and charges, delinquent, defaulted and restructured amounts under debt forgiveness and payment holidays, including accurate accounting for amounts attributable to principal and interest deficiency ledgers. A.14 Credit risk of underlying exposures 72. At the portfolio cut-off date (Date post which no credit claim or receivable transfer shall happen to SPE except against breach of representation and warranties as permitted under these directions) the underlying exposures have to meet the conditions under the Standardised Approach for credit risk, and after taking into account any eligible credit risk mitigation, for being assigned a risk weight equal to or smaller than: (1) 40 per cent on a value-weighted average exposure basis for the portfolio where the exposures are loans secured by residential mortgages or fully guaranteed residential loans; (2) 50 per cent on an individual exposure basis where the exposure is a loan secured by a commercial mortgage; (3) 75 per cent on an individual exposure basis where the exposure is a retail exposure; or (4) 100 per cent on an individual exposure basis for any other exposure. A.15 Granularity of the pool 73. At the portfolio cut-off date, the aggregated value of all exposures to a single obligor shall not exceed 1 per cent of the aggregated outstanding exposure value of all exposures in the portfolio. Provided that the applicable maximum concentration threshold could be increased to 2 per cent if the originator retains subordinated tranche(s) that form credit enhancements that are loss absorbing, and which cover at least the first 10 per cent of losses. These tranche(s) retained by the originator shall not be eligible for the STC capital treatment. B. Disclosure and Prudential Oversight for STC Securitisations 74. The originator shall disclose to investors all necessary information at the transaction level to allow investors to determine whether the securitisation is STC compliant. Based on the information provided by the originator, the investor must make its own assessment of the securitisation‘s STC compliance status before applying the alternative capital treatment. 75. For securitisation exposures retained by the originator, where significant credit risk transfer in terms of the requirements of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 have been achieved by the originator, the determination of compliance with STC requirements shall be made by the originator. 76. STC criteria need to be met at all times. Checking the compliance with some of the criteria might only be necessary at origination (or at the time of initiating the exposure, in case of guarantees or liquidity facilities) of an STC securitisation. (1) Notwithstanding, investors and holders of the securitisation positions are expected to take into account developments that may invalidate the previous compliance assessment, for example deficiencies in the frequency and content of the investor reports, in the alignment of interest, or changes in the transaction documentation at variance with relevant STC criteria. 77. In cases where the criteria refer to underlying, and the pool is dynamic, the compliance with the criteria will be subject to dynamic checks every time that assets are added to the pool. The criteria for the addition of assets shall be clearly described in relevant transaction documents. 78. Investors should consider whether the originator, servicer, and other parties with a fiduciary responsibility to the securitisation note holders have an established performance history for substantially similar credit claims or receivables to those being securitised and for an appropriately long period of time. 79. RBI would verify the preferential regulatory capital treatment assignments made by the banks, including the originator, as part of the supervisory review. If it is discovered that a transaction does not satisfy the STC criteria for regulatory capital purposes, RBI would take appropriate supervisory action including inter alia additional capital under the Pillar 2 framework, and/or by denying preferential regulatory capital treatment for that specific transaction and potentially others as well. Chapter IV - Provision of facilities supporting securitisation structures A. General Conditions 80. Lenders may provide supporting facilities such as credit enhancement facilities, liquidity facilities, underwriting facilities and servicing facilities. Apart from lenders, since such facilities may also be provided by entities that are not lenders, entities providing such facilities are referred to in this chapter as “facility providers”. Such facility provider(s) must be regulated by at least one financial sector regulator. 81. The facilities, as above, provided by facility providers should satisfy the following conditions, in addition to the specific conditions applicable to each facility as prescribed in the remaining paragraphs of this Chapter: (1) Provision of the facility should be structured in a manner to keep it distinct from other facilities and documented separately from any other facility provided by the facility provider. The nature, purpose, extent of the facility and all required standards of performance should be clearly specified in a written agreement to be executed at the time of originating the transaction and disclosed in the offer document. (2) The facility is provided on an 'arm's length basis' on market terms and conditions and subjected to the facility provider’s normal credit approval and review process. (3) Payment of any fee or other income for the facility is not subordinated or subject to deferral or waiver. (4) The facility is limited to a specified amount and duration. (5) The duration of the facility is limited to the earlier of the dates on which: (i) all claims connected with the securitisation notes issued by the SPE are paid out; or (ii) the facility provider's obligations in relation to such facility are otherwise terminated. (6) There should not be any recourse to the facility provider beyond the fixed contractual obligations. In particular, the facility provider should not bear any recurring expenses of the securitisation. (7) The facility provider has obtained legal opinion that the terms of agreement protect it from any liability to the investors in the securitisation or to the SPE / trustee, except in relation to its contractual obligations pursuant to the agreement governing provision of the facility. (8) The SPE and/or investors in the securitisation notes issued by the SPE have the clear right to select an alternative party to provide the facility subject to compliance of instructions in this direction. B. Credit Enhancement Facilities 82. Credit enhancement is the process of enhancing credit profile of a structured financial transaction through provision of additional security/financial support, for covering losses on securitised assets in adverse conditions. The enhancements can be broadly divided into two types viz. internal credit enhancement and external credit enhancement. Explanation (1) A credit enhancement which, for the investors, creates exposure to entities other than the underlying borrowers is called the external credit enhancement. For instance, cash collaterals and first/second loss guarantees are external forms of credit enhancements. Explan

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/DOR/2025-26/160 · issued 28 Nov 2025. The plain-English explanation above is BankPulse’s own independent summary.

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