Discussion paper on Securitisation of Stressed Assets Framework released by RBI

Current Affairs

  • The Reserve Bank of India released a discussion paper on the Securitisation of Stressed Assets Framework (SSAF) and has invited comments from stakeholders.
  • The discussion paper broadly covers nine relevant areas of the framework including asset universe, asset eligibility, minimum risk retention, the regulatory framework for special purpose entity and resolution manager, access to finance for resolution manager, capital treatment, due diligence, credit enhancement, and valuation.
  • SSA is a financial structure whereby an originator of NPAs sells these to an SPE that funds such an acquisition by issuing securitization notes.
  • In turn, SPE appoints a servicing entity to manage stressed assets, typically with a fee structure that incentivizes them to maximize recoveries on underlying loans.
  • Till now, Securitisation is allowed only in the case of standard assets while lenders have to largely rely on Asset Reconstruction Companies (ARCs) for bad assets under SARFAESI Act, 2002.

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