RBI may ask banks to hold securitised debt for 6 mths

MUMBAI: The Reserve Bank of India (RBI) may ask banks to hold
securitised debt for six to seven months on their books before selling
them to other market players, said investment bankers
originating such instruments.

In securitisation, an originator bank repackages loans in the form of
marketable securities.

These marketable securities are in the form of pass through
certificates (PTCs), these are like bonds, issued by
special purpose vehicle(SPV) holding the loan.

The RBI’s proposed move is in keeping with action taken by regulators
across the world to ensure that originators of securitised instruments
continue to have what is referred to as ‘some skin in the game’.
For instance, regulators in both the EU and the US now insist that the
originator retain a minimum of 5% of issued securities on his own book,
before sale. This they believe will lead to “ensuring material interest
in the performance of the proposed investments”.

Post the credit crisis, the US Department of Treasury now mandates that
the originators should have fees or incentives based on actual performance
of the pool. In Europe, the banks have also been barred from exposing more
than 25% of its own funds to a client or group of clients.

The seasoning or holding period being considered by
RBI is mainly for securities made by splicing
loans given to a single entity.

Such single-entity loans forms 60-70% of India’s total
securitisation market, pooling of multiple
loans making up the rest. Bankers say securities
made from a pool of multiple loans are anyway
sold in tranches, so seasoning in inherent.

RBI had in the past said it is looking at introducing a
minimum lock in period for originators.