RBI reduces minimum holding period for securitisation of loan portfolios

To help further ease liquidity condition for non-bank lenders, the Reserve Bank of India has made changes to the holding period for securitised loan portfolios.

In a notification on Thursday, the Reserve Bank of India said that the minimum holding period requirement for non-banking finance company originating loans, will now be set at six monthly or two quarterly installments. Earlier the holding period was 12 months.

The revised rules are applicable for loans of original maturity of above 5 years. This will help housing finance companies in particular who have longer maturity loans.

However, the RBI has increased the holding amount from 10 percent to 20 percent of the loan portfolio. This has been done to ensure that NBFCs selling loan portfolios have adequate skin in the game even after securitisation.

Minimum Retention Requirement for such securitisation/assignment transactions shall be 20 percent of the book value of the loans being securitised/20 percent of the cash flows from the assets assigned.

RBI Circular

The relaxation will stay in place for a six-month period from the date of the circular, said the RBI.The move is aimed at encouraging NBFCs to securitise loan portfolios more actively.

A default by once AAA-rated Infrastructure Leasing & Financial Services roiled the credit markets in India and led to a liquidity squeeze for NBFCs. While the market has improved over the month of November, non bank lenders are now more dependent on bank credit lines and securitisation to generate liquidity.

Securitisation volumes rose to Rs 18,000 crore in October 2018, said rating agency ICRA in a release on Nov. 13. These funds helped NBFCs meet a portion of the Rs 78,000 crore in commercial paper that was due for repayment in October 2018.

So far this year, Rs 83,800 crore in securitisation deals have been reported. #casansaar (Source - RBI, Bloomberg)