RBI securitisation proposals may hurt market: bankers

RELATED NEWS RBI may issue securitisation rules for NBFCs, direct sales RBI allows securitisation firms more powers Banks will lend more to infra cos post credit policy: IFCI Indiabulls Real has resistance at Rs 175: Gujral RBI releases draft rules on investment firms Nifty BSE | NSE 28/05/12 Are Mutual Funds betting on Nifty?

"If the bank holds a loan till nine months, then it will be compelled to do a proper due diligence. However, the issue is not closed and we are open to discussion," the official, who declined to be named, said.

The RBI is also concerned that the securitised paper gets a better rating than the bank's own loan rating because of the security's shorter maturity, and absence of proper due diligence could be dangerous for investors in that paper, he said.

While bankers acknowledge that the central bank's worries are not unfounded, they added that banks do take into account the risk of not getting investors for a securitised asset and therefore do exert caution on the credit quality.

Investors in such assets, mostly mutual funds, are not too worried about the implications of the securitisation proposals.

"While it is an attractive instrument, it makes up only about 10 percent of portfolios industry-wide, which has also come down when the RBI began hinting of the increased regulations in this market," said a mutual fund official, adding "it is not something that I cannot live without."