The Reserve Bank of India on Tuesday issued revised draft norms to regulate the growth in securitisation of bank loans. This may increase the securitisation of retail assets like home and consumer durables.
The banking regulator has, for the first time, framed norms for bilateral sale of loans. These loans involve the transfer of any single standard asset or portfolio of assets.
Securitisation is the process of converting existing assets or future cash flows into marketable securities. Typically, vehicle loans, home loans and corporate loans are pooled and packaged into securities. The repayments from borrowers are assigned to investors in securities.
The central bank has retained the minimum holding period norms set in the draft guidelines in April 2010. For loans with maturity periods of less than two years with quarterly repayments, banks would have to hold loans for at least nine months before hiving these off. For loans with less than quarterly repayment schedules, banks can securitise loans after six months. This may boost the securitisation of consumer loans.
According to rating agency Icra, the Indian securitisation market volume fell to Rs 30,825 crore in 2010-11, a decline of 29 per cent compared to the previous financial year. Securitisation of retail loans fell about six per cent. The drop in overall volume was primarily owing to single corporate loan securitisation (bilateral loans) falling out of favour. These declined primarily as a fall-out of the draft regulatory guidelines issued in April 2010. The draft norms had proposed a minimum holding period and a minimum retention requirement.
The central bank's draft revised norms are aimed at curbing the securitisation of credit card receivables and cash credit facilities. The regulator also intends to allow limited recognition of cash profits from securitisation transactions. The profit received in cash-related securitisation may be held under an accounting head ‘cash profit on loan transfer transactions pending recognition’.
