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The sale of season: Holding period requirements for assignments and securitisation

– Team Finserv | finserv@vinodkothari.com

Any sale or assignment or transfer, including securitisation, of loans is subject to a minimum seasoning with the originator. Under the extant regulatory provisions, such requirement is referred to as ‘Minimum Holding Period’ (MHP), which means the minimum period for which the originator should have held the loan exposures before the same is transferred to the transferee or Special Purpose Entity (SPE), as the case may be. This serves several purposes: that the loan was not originated for sale, the originator has had some equity in the loans, and that there is a benefit of hindsight of performance.

MHP requirements have always been a part of the regulations in India. However, on December 5, 2022, the Reserve Bank of India (RBI) made certain amendments to the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021[1] (‘TLE Directions’) as well as the Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021[2] (‘SSA Directions’). Among the other changes, there was a change in the MHP provisions; this change may have a significant impact on future transactions. 

This write-up intends to clarify the position with respect to the computation of MHP for different types of loans under TLE Directions as well as SSA Directions.

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RBI amends TLE Directions

– Team Finserv | finserv@vinodkothari.com

The Reserve Bank of India (RBI) made certain amendments to the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (‘TLE Directions’) on December 05, 2022. The long-awaited welcome move of allowing ARCs to acquire loans falling in 1-60 DPD as well is being well appreciated. Some of the changes seem to be creating a confusion; say not allowing foreign branches of Indian banks to acquire defaulted loans; while others, seem to be providing more clarity; such as clarifying that registration of security interest for the purpose of computing MHP shall mean registration of security interest with CERSAI only.

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Three significant changes in Securitisation Directions

Loans with less than 1 year to go cannot be securitised; Minimum holding period norms tweaked, may impact home loan securitisation

– Vinod Kothari | finserv@vinodkothari.com

On December 5, 2022, the RBI silently made some significant changes and updated the RBI (Securitisation of Standard Assets) Directions, 2021 (‘SSA Directions’). It is difficult to understand if these amendments are pursuant to some consultation, or feedback gathered from supervisory experience. The three significant changes seem to be mutually disconnected, though some of the amendments are related to the amendments made, on the same date, to the RBI (Transfer of Loan Exposures) Directions, 2021 (‘TLE Directions’) too.

We deal with the three amendments, and their implications, below:

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New regime for securitisation and sale of financial assets

Team, Vinod Kothari Consultants

finserv@vinodkothari.com

On Monday, 8th June, 2020, the RBI released, for public comments, two separate draft guidelines, one for securitisation of standard assets, and the other for sale of loans. Once implemented, these guidelines will replace the existing regulatory framework that has stood ground, in case of securitisation for the last 14 years, and 8 years in case of direct assignment. We have separately dealt with the Draft Directions on Securitisation of Standard Assets in a write up titled “Originated to transfer- new RBI regime on loan sales permits risk transfers

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