RBI REVISES RULES FOR LOAN TRANSFER, SECURITISATION

The Reserve Bank of India (RBI) on Friday revamped loan transfer and securitisation rules for lenders in a bid to improve the recovery value from them and strengthen the lenders balance sheet. In the loan transfer guidelines, the central bank permitted lenders to sell loans exposures classified as fraud to asset reconstruction companies (ARCs).

Currently, stressed loans which are in default for more than 60 days or classified as non-performing assets are permitted to be transferred to ARCs. The revised norms stated that the transfer to ARCs can now include “loan exposures classified as fraud as on the date of transfer provided that the responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC.”

“Loan transfers are resorted to by lending institutions for a multitude of reasons ranging from liquidity management, rebalancing their exposures or strategic sales. A robust secondary market in loans can be an important mechanism for management of credit exposures by lending institutions and also create additional avenues for raising liquidity, “

In another circular on securitisation of standard assets, the central bank on Friday said that securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly.

The new norms stated that a pool consisting of a single asset will also be permitted for securitisation.