The Reserve Bank of India(i.e. RBI) has proposed major changes in securitization norms that aimed at the development of a strong so also robust market for the same in the country on Monday. Securitization basically involves transactions whereas a credit risk in assets is ideally re-distributed by repackaging them into tradeable securities with various risk profiles that give various investors access.
In line with the Basel-III guidelines, two capital measurement approaches have been proposed – Securitisation External Ratings Based Approach (i.e. SEC-ERBA) and Securitisation Standardised Approach (i.e. SEC-SA) as well.
The draft guidelines have prescribed a special case of the securitization, which called Simple, Transparent, and Comparable (i.e. STC) securitizations with clearly defined criteria and preferential capital treatment.
The definition of securitization has been modified to allow single asset securitizations. Securitization of exposures purchased from other lenders has been allowed, according to the source revised guidelines.
“One of the key changes relates to differential treatment for Residential Mortgage-Backed Securities (RMBS) compared to other securitizations in respect of prescriptions regarding minimum holding period (MHP), minimum retention requirements (MRR) and reset of credit enhancements,” as the draft document told.
The revisions in those guidelines as well as take into an account the recommendations of that Committee on the Development of Housing Finance Securitisation Market that chaired by Dr. Harsh Vardhan and also the Task Force on the Development of Secondary Market for the Corporate Loans that chaired by T N Manoharan, which were set up by the Reserve Bank of India in May 2019. The RBI told that the comments on the draft frameworks can be submitted to it by the end of this month.