Brief Overview:
With the objective of providing the broader framework for securitisation of stressed assets, the RBI has introduced the Draft Reserve Bank of India (Securitisation of Stressed Assets) Directions, 2025 (“Draft Master Directions”).
Applicability:
The Draft Master Directions apply to: (a) scheduled commercial banks (excluding regional rural banks); (b) all India financial institutions; (c) small finance banks; and (d) all non-banking finance companies, including housing finance companies (collectively the “REs”).
Intention:
The Draft Master Directions intend to supplement the specific areas covered under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (as amended from time to time) (“SARFAESI Act”) and provide a broader mechanism for the REs to undertake securitisation of their stressed loan exposures.
The comments on the Draft Master Directions are invited from public / stakeholders till 12th May 2025.
Technical Details:
Some of the key points from the Draft Master Directions are set out below:
1) Assets eligible for securitization:
(a) Pool of stressed assets can be securitised except for those specifically excluded under the Draft Master Directions; and
(b) The stressed asset pool must be homogenous, i.e. (i) personal and business loans to individuals, and (ii) loans to macro enterprises, not exceeding INR 500,000,000/- (Indian Rupees Five Hundred Million) shall be in a different pool than all other loans.
2) Minimum Risk Retention Requirement (“MRR”):
MRR is not a mandatory regulatory requirement except as specified under the Draft Master Directions. However, the originator or resolution manager (“ReM”) or both may retain risk as per contractual arrangement among the parties involved.
3) Total Retained Exposures by originators:
An originator’s total exposure to securitisation exposures within a specific securitisation structure or scheme must not exceed 20% (twenty percent) of the overall securitisation exposures under that structure.
Any exposure above 10% (ten percent) and up to the maximum permissible limit of 20% (twenty percent) shall be treated as first loss, for all prudential purposes, irrespective of the actual exposure being in any other tranche.
4) ReMs:
RBI regulated entity may be appointed by a special purpose entity (“SPE”) as ReMs for managing the resolution and recovery of underlying stressed exposures.
5) The Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 (as amended from time to time) (“Standard Assets Master Directions”) shall be applicable mutatis mutandis in relation to: (a) accounting provisions; (b) supporting facilities by facility providers; (c) origination standards, payment priorities, issuance and listing; (d) conditions to be satisfied by SPE; and (e) originator’s representations and warranties.
Key Takeaways:
The Draft Master Directions provide a structured and coherent framework for resolving non-performing assets (NPAs) and complement the SARFAESI Act by strengthening the mechanism for pooling and resolving stressed assets.
Further, by introducing ReMs with specialized expertise, the Draft Master Directions enhances the potential for effective asset recovery.
For further details, please see:
Reserve Bank of India – Database
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