RBI issues 2-stage guideline for securitisation of assets

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Mumbai, April 5: The assets of a bank, after their transfer to the special purpose vehicle (SPV), should stand completely isolated from themselves, even under bankruptcy, says the draft guidelines on securitisation of standard assets unveiled by Reserve Bank of India (RBI).

The SPVs and holders of beneficial interests in their assets shall have no recourse to the originator. The latter too cannot enter into an agreement to repurchase.

As a follow-up measure to the Union Budget, the Reserve Bank of India, on Tuesday, issued draft guidelines on securitisation of standard assets to aim at healthy development of the securitisation market. RBI said, the originator should not hold shares more than Rs 5 lakh or 10% of the capital of the trustee company, which ever is less. Even the pass through certificates (PTCs) issued by SPV should be rated by a rating agency, registered with Securities and Exchange Board of India (SEBI), which will be reviewed after every six months.

As per the draft guidelines, for a transaction to qualify as securitisation, it has to follow a two-stage process. In the first stage, there should be pooling and transferring of assets to a special purpose vehicle (SPV).

In the second stage, repackaging and selling the security interests representing claims on incoming cash inflows from the pool of assets to the third party investors should be effected.

To enable the transferred assets to be removed from the balance sheet of the seller, it is necessary to isolate assets to undertake ‘true sale’ from the seller to the SPV, said RBI in a statement.

The guidelines mention that banks should not maintain effective control over the transferred assets through any agreement that entitles banks to repurchase or redeem them before their maturity.