RBI to seek feedback for additional framework on securitisation of stressed assets

India’s banking regulator Reserve Bank of India (RBI) will soon launch a discussion paper seeking industry feedback on introducing a framework for securitisation of stressed assets in addition to the asset reconstruction company (ARC) route, Governor Shaktikanta Das said on September 30.

Currently, only the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act provides a framework for such securitisations by asset reconstruction companies (ARCs).

“However, based on market feedback, stakeholder consultations, and recommendations of the task force on development of secondary market for corporate loans, it has been decided to introduce a framework for securitisation of stressed assets in addition to the ARC route, similar to the framework for securitisation of standard assets,” the central bank said.

ARCs purchase stressed loans and NPAs from banks before engaging in recovery to generate a return on their investment.

The RBI had in September 2021 issued a revised framework for securitisation of standard assets and for securitisation of non-performing assets (NPAs).

Anil Gupta, senior vice president and Co-Group head of financial sector ratings at ICRA says there has been active interest from various other investors in stressed asset markets.

"These investors do invest in such stressed assets by participating in security receipts issued by ARCs. Allowing participation to a more set of investors could widen the investor base for direct purchases of these stressed loans from banks and could lead to better price discovery for banks," Gupta said.