RBI Draft Norms on Stressed Asset Securitization

Mumbai, Apr 9 (PTI) The Reserve Bank on Wednesday proposed a framework to enable securitisation of stressed assets through a market-based mechanism, in addition to the existing asset reconstruction company (ARC) route.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) provides a specific framework for securitisation and reconstruction of financial assets by way of transfer of such assets to an ARC involving, inter alia, issue of security receipts by the ARC representing undivided interest in such financial assets

Securitisation of stressed assets involves transactions where risk of recovery in stressed assets is distributed, among investors, by repackaging such assets into tradeable securities with different risk profiles.

On Wednesday, the RBI said a prudentially structured securitisation transaction can be an enabler for resolution of stressed assets as it is expected to improve risk distribution and provide an exit route from such exposures for lenders.

With this objective, RBI had released a discussion paper on Securitisation of Stressed Assets Framework in January 2023, to seek comments from market participants on various aspects of the framework.

"After factoring in the suggestions received from the stakeholders on the discussion paper, the draft framework for securitisation of stressed assets is being issued for public comments," the RBI said.

As per the draft, the securitisation of stressed assets may also involve a distinct class of facility providers, the resolution managers (ReM) responsible for administering resolution/recovery of the underlying stressed exposures.

"The envisaged role of the ReM in this framework is to effectively resolve the stressed assets and maximise the realisation of value," it said.

ReM shall typically have experience in workout of NPAs, including drawing of effective business plans, recovery strategies, loan management, legal network, reporting and IT (also for data quality purposes).

The draft also proposes requirements to be met by lenders who are investors in securitisation exposures; capital requirements for securitisation notes; and reporting and disclosures, among others.

The RBI has invited comments on the draft directions from public and stakeholders by May 12, 2025.