The Reserve Bank of India (RBI) today came out strongly against banks using securitisation, a system under which loans are sold to third party to enhance liquidity, to book profits.
"RBI would have concerns...(if) these (securitisation) transactions are being done to avoid restrictions on profit- booking and higher capital requirements for credit enhancements," RBI's Deputy Governor, Shyamala Gopinath, said in her address at the India Securitisation Summit here.
Gopinath said "sustainable" securitisation can play a positive role in India and it is imperative that the market develops for the "right reasons" which entails transfer of risk away from the banking system.
Securitisation was behind the sub-prime crisis in the US, which eventually led to the global economic meltdown in 2008. It refers to the pooling of cash-flow-producing assets (e.G., mortgages, loans, bonds) and subsequent issuance of securities in the capital markets, backed by these pools as collaterals.
Gopinath also called for a stringent regulation of credit rating agencies which grade securitisation instruments and were partly responsible for precipitating the global financial crisis by giving high-ratings to sub-prime borrowings.
The RBI had in 2006 come out with draft guidelines for securitisation by banks and non-bank lenders (NBFCs) which suggest a minimum holding period and retention criteria for selling of loans to third parties.
Industry players have suggested that it is difficult to have a uniform retention and holding period as the average loan maturities differ between types of loans (asset classes).
A home loan matures in 15-years, a micro-finance loan in as low as a year and an auto loan in three-years, ICICI Prudential Deputy Managing Director, Nilesh Shah, said.
"RBI is examining the responses and the final guidelines for banks as well as NBFCs will be issued after taking into account the feedback," Gopinath said, refusing to give a time-frame for the same.
Gopinath said the Indian securitisation market has seen the emergence of newer asset classes like micro-finance loans and loans against gold and property, besides conventional auto loans, mortgage loans and single-loan transactions.
The Deputy Governor called for promoting standardisation to enable trading of securities on Exchanges. RBI was against re-securitisation, she added.
