Reserve Bank relaxes NBFC securitisation norms

RBI has relaxed rules for Non-Banking Financial Companies to sell or securitise their loan books, in order to ease stress in the sector.

NBFCs can now securitise loans of more than five-year maturity after holding those for six months on their books, the RBI said in a notification. Earlier, they had to hold these assets for at least one year. However, the relaxation on the minimum holding period will be allowed when the NBFC retains 20 per cent of the book value of these loans, the RBI said.

NBFCs are facing stress on their balance sheets after a debt crisis hit Infrastructure Leasing and Financial Services (IL&FS) in September, triggering panic amongst investors and a cash crunch in the sector. Following the volatility in financial markets, the RBI and the Centre have taken steps to ring fence the crisis and support financing needs of the sector, including providing additional liquidity to banks and credit enhancement for refinancing needs.

“In order to encourage NBFCs to securitise/assign their eligible assets, it has been decided to relax the minimum holding period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly installments or two quarterly installments (as applicable),” the RBI notification said.

The minimum retention requirement (MRR) for such securitisation/assignment transactions will be 20 per cent of the book value of the loans being securitised/ 20 per cent of the cash flows from the assets assigned, the RBI said. “The new dispensation will be applicable to securitisation/ assignment transactions carried out during a period of six months from the date of issuance of this circular,” the RBI said.

“Relaxation in MHP criteria would primarily benefit HFCs and NBFCs offering mortgage loans where the loan tenure is typically more than 5 years,” Vibhor Mittal, group head – structured finance, ICRA, said.