Reserve Bank of India (RBI) has proposed introducing securitisation of stressed assets via market mechanism to ease the burden of stressed assets on banks.

The policy will enable lenders with stressed assets to bundle them together into tradeable securities to share the risk of Non-Performing Assets (NPAs). “It is proposed to enable securitisation of stressed assets through market-based mechanism. This is in addition to the existing ARC (Asset Reconstruction Company) route under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002,” RBI Governor Sanjay Malhotra announced as part of additional regulatory measures on April 9.

The securitisation process will be performed by a resolution manager (RM) who will be appointed by a special purpose entity (SPE), RBI proposed in its draft. The central bank also proposed valuation methods, capital requirements for investors, disclosures to be made, among others, in the draft document. The securitised asset can be sold to an SPE only for cash. 

The RBI also proposed that resecuritisation, synthetic securitisation, farm credit, education loan , fraudulent account, wilful default, among others, will not be eligible for securitisation.