What Was Announced
The Reserve Bank of India (RBI) released a draft framework in April, "Reserve Bank of India (Securitization of Stressed Assets) Directions, 2025". This framework aims to establish a comprehensive set of guidelines for the securitization of stressed assets, including non-performing loans (NPLs), thereby facilitating their resolution through market-based mechanisms.
When
The draft was issued in April 2025 and is currently open for public comments.
Applicability
- The draft directions apply to all Regulated Entities (REs), including:
- Commercial Banks (including Regional Rural Banks and Local Area Banks)
- Urban/State/Central
- Co-operative Banks All India Financial Institutions (AIFIs)
- Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs)
Impact on Banks
- Expanded Securitization Scope: Banks can now securitize stressed assets, including NPLs, not just standard assets. This provides an alternative to selling such assets to Asset Reconstruction Companies (ARCs) at steep discounts.
- Market-Driven Pricing: The framework allows for market-determined pricing of securitized stressed assets, potentially leading to better recovery rates for banks.
- Enhanced Liquidity: By converting stressed assets into tradable securities, banks can improve their liquidity positions and manage balance sheets more effectively.
- Attracting Investors: The move is expected to attract foreign portfolio investors (FPIs) and private credit funds, deepening the market for high-yield investment opportunities.
- Regulatory Reporting: Banks will need to adhere to updated regulatory reporting requirements concerning the securitization of stressed assets, ensuring transparency and compliance.
All regulatory changes arising from this announcement will be addressed as part of the OneSumX Regulatory Update Services (RUS). Learn how to be prepared for upcoming regulatory changes by visiting OneSumX for Regulatory Reporting.
