The central financial institution has set out a dozen questions for stakeholders to deliberate and reply earlier than February 28. The RBI had first mentioned on September 30, 2022, that it’s going to introduce a framework for securitisation of harassed property.
“The dialogue paper broadly covers 9 related areas of the framework together with asset universe, asset eligibility, minimal risk retention, regulatory framework for particular function entity and determination supervisor, entry to finance for decision supervisor, capital therapy, due diligence, credit enhancement, and valuation,” the central financial institution mentioned in a notification.
Securitisation includes pooling of loans and promoting them to a particular function entity (SPE), which then points securities backed by the mortgage pool.
One of many greatest factors open for dialogue is whether or not the securitisation of harassed loans ought to solely be restricted to non-performing loans or ought to embrace customary property, too, within the SMA class. Particular point out accounts or SMA are these loans that are due between zero and 90 days.
The central financial institution can be searching for feedback on which sort of property must be eligible for securitisation like time period loans throughout the identical asset universe, big-ticket loans above a sure threshold or small-ticket loans akin to business and residential mortgages, loans to MSMEs and unsecured retail property.
The central financial institution has additionally mentioned that the function of particular function automobile and determination supervisor (RM) is central to the framework as they’re straight liable for decision and restoration of underlying harassed swimming pools; it’s fascinating that they need to be throughout the regulatory purview of Reserve Financial institution.The RBI has additionally sought feedback on whether or not the framework ought to utterly prohibit any sort of relationship of originator with the decision supervisor submit switch of harassed property or an arm’s size relationship could also be permitted for a sure interval.
One other difficulty open for consideration is whether or not decision managers must be allowed to borrow from different lending establishments in direction of further funding for decision of underlying property.