RBI Proposes New Framework for Securitisation of Stressed Assets

The Reserve Bank of India has proposed a new framework allowing securitisation of stressed assets via a market-based mechanism alongside ARCs. This aims to improve risk distribution and provide exit options for lenders. Public comments on the draft are invited until May 12, 2025.

The Reserve Bank of India (RBI) unveiled a proposed framework on Wednesday that seeks to enhance the process of securitisation for stressed assets by introducing a market-based mechanism, complementing the current Asset Reconstruction Companies (ARC) method. The move is anchored in the provisions of the SARFAESI Act, 2002, which addresses securitisation and reconstruction of financial assets.

This framework is expected to facilitate the distribution of recovery risks in stressed assets by transforming them into securities with varied risk profiles. Through structured securitisation, the RBI anticipates enhanced risk distribution and a viable exit strategy for lenders handling stressed exposures.

Initially introduced in a discussion paper in January 2023, the RBI's proposal involves integrating feedback from stakeholders to draft a comprehensive framework. An integral aspect is the role of resolution managers in resolving stressed assets and maximizing value realization. The RBI is seeking feedback from the public until May 12, 2025, to refine the proposal further.

(With inputs from agencies.)