The Reserve Bank of India on 24th September 2021 has published the master direction on Securitisation of Standard Assets which shall be applicable to Scheduled Commercial Banks (excluding Regional Rural Banks), All India Term Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI), Small Finance Banks and All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs).
RBI has specified the Minimum Retention Requirement (MRR) for different asset classes as follows:
- For underlying loans with original maturity of 24 months or less, the MRR shall be 5% of the book value of the loans being securitised.
- For underlying loans with original maturity of more than 24 months as well as loans with bullet repayments, as mentioned in proviso to Clause 6, the MRR shall be 10% of the book value of the loans being securitised.
In the case of residential mortgage backed securities, the MRR for the originator shall be 5% of the book value of the loans being securitised, irrespective of the original maturity.MRR should not be reduced either through hedging of credit risk or selling or encumbering the retained interest. MRR has to be maintained by the originating lender itself and not by any of its group entities.
The total exposure of an originator to the securitisation exposures belonging to a particular securitisation structure or scheme should not exceed 20% of the total securitisation exposures created by such structure or scheme. However, the exposure of originators to credit enhancing interest only strip shall be excluded from this limit.
The 20% limit on total retained exposures will not be deemed to have been breached if it is exceeded due to amortisation of securitisation notes issued.
Further under the provision of facilities supporting securitisation structures, the lenders may provide supporting facilities such as credit enhancement facilities, liquidity facilities, underwriting facilities and servicing facilities. Apart from lenders, since such facilities may also be provided by entities that are not lenders, entities providing such facilities are generally referred to in these directions as “facility providers”. Such facility provider(s) must be regulated by at least one financial sector regulator.
