The rules for securitisation transactions were first relaxed on November 29, 2018, months after a liquidity crisis emerged in the wake of the collapse of the Infrastructure Leasing & Financial Services (IL&FS) group.
The Reserve Bank of India (RBI) on Tuesday extended the availability of relaxed terms for sale of assets by non-bank lenders to banks to June 30, 2020. The dispensation was earlier set to expire on Tuesday. The rules for securitisation transactions were first relaxed on November 29, 2018, months after a liquidity crisis emerged in the wake of the collapse of the Infrastructure Leasing & Financial Services (IL&FS) group.
In order to encourage non-banking financial companies (NBFCs) to securitise or assign their eligible assets, the central bank had reduced the minimum holding period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above five years, to six months from one year earlier.
In order for loan pools to be eligible to avail the dispensation, the minimum retention requirement (MRR) for such securitisation transactions must be 20% of the book value of the loans being securitised, or 20% of cash flows from the assets assigned. The relaxed guidelines for securitisation and direct assignment transactions were aimed at easing the flow of funds from the banking sector to NBFCs.
Thereafter, the central bank announced more measures to help NBFCs access funding. In September 2019, the RBI revised the large exposures framework (LEF) which has been effective since April 1, 2019, for all scheduled commercial banks. Under the earlier framework, a bank’s exposure to a single NBFC was restricted to 15% of its available eligible capital base, while the general single counterparty exposure limit was 20%.
RBI governor Shaktikanta Das said at the December monetary policy review that credit flow to the NBFC sector is gradually reviving. “The better-performing NBFCs are able to access funds from the market at pre-IL&FS rates. The market today is differentiating between the good and the not-so-good NBFCs. And naturally, the market will have to differentiate and provide money wherever required as per it’s soon assessment of the strength of NBFCs,” he said.