September 24, 2021<\/p>\n
All Scheduled Commercial Banks (including Small Finance Banks but excluding
\nRegional Rural Banks);
\nAll All-India Term Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);
\nAll Non-Banking Financial Companies (NBFCs) including Housing Finance
\nCompanies (HFCs)<\/p>\n
Please refer to the Draft Framework for Securitisation of Standard Assets that was released on June 8, 2020 for comments from various stakeholders.<\/p>\n
2. Based on the examination of the comments received, the Reserve Bank has issued the Master Direction \u2013 Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021, which are enclosed. These directions have been issued in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949; Chapter IIIB of the Reserve Bank of India Act, 1934; and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987.<\/p>\n
3. These directions come into immediate effect replacing the existing instructions on the matter of securitisation of standard assets. All lending institutions are advised to take necessary steps to ensure compliance with these directions.<\/p>\n
Yours faithfully,<\/p>\n
(Manoranjan Mishra)
\nChief General Manager<\/p>\n
September 24, 2021<\/p>\n
Master Direction \u2013 Reserve Bank of India (Securitisation of Standard Assets)<\/strong> Introduction<\/strong><\/p>\n 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.<\/p>\n Given the above, in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949; Chapter IIIB of the Reserve Bank of India Act, 1934; and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the directions hereinafter specified.<\/p>\n Short title and commencement<\/strong><\/p>\n 1. These directions shall be called the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021.<\/p>\n 2. These directions shall come into force with immediate effect.<\/p>\n Chapter I: Scope and Definitions<\/strong><\/p>\n A. Applicability and Purpose<\/strong><\/p>\n 3. The provisions of these directions shall apply to the following entities (collectively referred to as lenders in these directions) unless specifically mentioned otherwise:<\/p>\n (a) Scheduled Commercial Banks (excluding Regional Rural Banks);<\/p>\n (b) All India Term Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);<\/p>\n (c) Small Finance Banks (as permitted under Operating Guidelines for Small Finance Banks dated October 6, 2016 and as amended from time to time); and,<\/p>\n (d) All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs).<\/p>\n 4. These directions will be applicable to securitisation transactions undertaken subsequent to the issue of these directions.<\/p>\n B. Definitions<\/strong><\/p>\n 5. For the purpose of these directions, the following definitions apply:<\/p>\n (a) \u201cbankruptcy 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;<\/p>\n (b) \u201cclause\u201d means a clause of these directions, unless otherwise specified;<\/p>\n (c) \u201cclean-up call\u201d 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;<\/p>\n (d) \u201ccredit enhancement\u201d 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;<\/p>\n (e) \u201cearly amortisation provision\u201d means a mechanism that, once triggered, accelerates the reduction of the investor\u2019s 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;<\/p>\n (f) \u201cexcess spread (or future margin income)\u201d 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.<\/p>\n
\nDirections, 2021<\/strong><\/p>\n