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RBI came out with revised draft guidelines (follow on to the April 2010 draft guidelines) on
securitisation transaction and are applicable to banks. These guidelines cover the following
1) securitisation of standard assets by originating banks, 2) direct assignments (not explicitly
covered in earlier draft) and 3) securitisations not permitted (re-securitisation, synthetic and
revolving structures).
These draft guidelines at present are applicable to banks. However, in our view, such
guidelines will likely get extended to NBFCs in general over a period of time.
At this point in time, we are unable to comment on the impact of these guidelines on banks.
Key highlights:
1) Minimum Holding Period (MHP):
Repayment schedule MHP
For loans with original maturity up to 24 months- 9 months post disbursement
or 3 months from the due date of second quarterly instalment of interest
and/or principal whichever is later
Loans with quarterly repayment
schedules
For loans >24 months -12 months post disbursal or 3 months from the due
date of second quarterly interest and/or principal whichever is later
Loans with less than quarterly
repayment schedule (eg:
monthly)
6 months from the date of disbursal or 6 months from the date of first
instalment of interest and/or principal whichever is later
2) Minimum Retention Requirement (MRR):
Loan maturity MRR
<= 24 months 5% of the book value/cash-flows of loans being securitised
>24 months 10% of the book value/cash-flows of loans being securitised
3) Profit recognition: The amount of profit received in cash (arising out of securitisation
transactions) may be held under an accounting head styled as “Cash Profit on Loan Transfer
Transactions Pending Recognition” maintained on individual transaction basis. The losses,
including marked-to-market losses, incurred by banks on the MRR and any other exposures
to the securitisation transaction (other than credit enhancing interest only strip) may be
charged to this account to the extent this account has positive balance. The amount lying in
this account may be amortised over the life of the loans transferred, in a straight line method.
4) Standards for due diligence: Banks can invest in or assume exposure to a securitisation
position only if the originator (other banks/FIs/NBFCs or any other entity in India) has
explicitly disclosed to the credit institution that it will adhere to the MHP and MRR stipulated
in these guidelines. The overseas branches of Indian banks should also not invest or assume
exposure to securitisation positions in other jurisdictions which have not laid down any MRR.
However, they can invest in such instruments in the jurisdictions where the MRR has been
prescribed, though it may be different from that prescribed in this circular.
5) No credit enhancement in case of direct assignment transactions: Banks should not offer
credit enhancements in any form and liquidity facilities in the case of loan transfers through direct
assignment of cash flows, as the investors in such cases are generally the institutional investors
who should have the necessary expertise to appraise and assume the exposure after carrying out
the required due diligence.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI came out with revised draft guidelines (follow on to the April 2010 draft guidelines) on
securitisation transaction and are applicable to banks. These guidelines cover the following
1) securitisation of standard assets by originating banks, 2) direct assignments (not explicitly
covered in earlier draft) and 3) securitisations not permitted (re-securitisation, synthetic and
revolving structures).
These draft guidelines at present are applicable to banks. However, in our view, such
guidelines will likely get extended to NBFCs in general over a period of time.
At this point in time, we are unable to comment on the impact of these guidelines on banks.
Key highlights:
1) Minimum Holding Period (MHP):
Repayment schedule MHP
For loans with original maturity up to 24 months- 9 months post disbursement
or 3 months from the due date of second quarterly instalment of interest
and/or principal whichever is later
Loans with quarterly repayment
schedules
For loans >24 months -12 months post disbursal or 3 months from the due
date of second quarterly interest and/or principal whichever is later
Loans with less than quarterly
repayment schedule (eg:
monthly)
6 months from the date of disbursal or 6 months from the date of first
instalment of interest and/or principal whichever is later
2) Minimum Retention Requirement (MRR):
Loan maturity MRR
<= 24 months 5% of the book value/cash-flows of loans being securitised
>24 months 10% of the book value/cash-flows of loans being securitised
3) Profit recognition: The amount of profit received in cash (arising out of securitisation
transactions) may be held under an accounting head styled as “Cash Profit on Loan Transfer
Transactions Pending Recognition” maintained on individual transaction basis. The losses,
including marked-to-market losses, incurred by banks on the MRR and any other exposures
to the securitisation transaction (other than credit enhancing interest only strip) may be
charged to this account to the extent this account has positive balance. The amount lying in
this account may be amortised over the life of the loans transferred, in a straight line method.
4) Standards for due diligence: Banks can invest in or assume exposure to a securitisation
position only if the originator (other banks/FIs/NBFCs or any other entity in India) has
explicitly disclosed to the credit institution that it will adhere to the MHP and MRR stipulated
in these guidelines. The overseas branches of Indian banks should also not invest or assume
exposure to securitisation positions in other jurisdictions which have not laid down any MRR.
However, they can invest in such instruments in the jurisdictions where the MRR has been
prescribed, though it may be different from that prescribed in this circular.
5) No credit enhancement in case of direct assignment transactions: Banks should not offer
credit enhancements in any form and liquidity facilities in the case of loan transfers through direct
assignment of cash flows, as the investors in such cases are generally the institutional investors
who should have the necessary expertise to appraise and assume the exposure after carrying out
the required due diligence.
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