RBI has revised guidelines on securitisation, wherein it has proposed that the seller of the loan should at least hold the loan in its books for one year and retain a minimum 10% of the securitised amount if the loan is with original maturity of two years.
The revised draft guidelines also says if the loan is for two years, the originator should hold the loan in its books for at least nine months and it should subscribe to at least 5% of the securitised amount. The two-year period will start from the date of full disbursement of loan or date of first instalment of loan if the loan is for two years. “The revised guideline may not really improve the appetite for securities papers because of minimum seasoning requirement,” said Kalpash Gada, head — structured finance, Icra.
However, RBI had said in the past that they would be issuing guidelines on securitisation, whereby it would indicate a minimum holding and a minimum retention period. Interestingly, in the revised draft guidelines, RBI has been quite on the bilateral deals. “As of now, a huge chunk of securitisation is bilateral deals with retail loans as underline asset.” However, the discussion paper on securitisation put out by RBI has indicated that there is a need to take a close look at bilateral deals.
Securitisation, to put it simply, is one entity selling a part of its loans portfolio to another. Technically, it is pooling together of loans into standard marketable bonds, which helps banks free more capital which can then be used for its lending business.
Further, in its revised draft guidelines, RBI has also made an effort to discourage securitisation of loans which have a poor credit rating. RBI has set a 20% limit on the amount of amount of total securisation that the originator can take on its books. In the revised guidelines, this 20% limit will also include the credit enhancement in a particular pool.
So far, the originator could hold up to 20% of the securitised amount but this did not include credit enhancement. Since there is no limit of credit enhancement, the originator could better the credit rating by setting aside a huge portion in the form of cash, FDs and guarantees.
In case the originator exceeds 20% limit because of devolvement of underwritten securities, the excess amount would be deducted from capital 50% from tier-I and 50% from tier-II capital. The tier-I (equity and reserves) and tier-II (subordinate debt) capital is part of the capital that banks have to maintain. Credit exposure on account of interest rate swaps or currency swaps will be excluded as these would not be within the bank’s control.
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