The Reserve Bank recently proposed a framework to enable securitisation of stressed assets through a market-based mechanism, in addition to the existing asset reconstruction company (ARC) route. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) provides a specific framework for securitisation and reconstruction of financial assets by way of transfer of such assets to an asset reconstruction company (ARC) involving, inter alia, issue of security receipts by the ARC representing undivided interest in such financial assets. Securitisation of stressed assets involves transactions where risk of recovery in stressed assets is distributed, among investors, by repackaging such assets into tradeable securities with different risk profiles.

As per RBI, a prudentially structured securitisation transaction can be an enabler for resolution of stressed assets as it is expected to improve risk distribution and provide an exit route from such exposures for lenders. With this objective, RBI has published ‘Draft Reserve Bank of India (Securitisation of Stressed Assets) Directions, 2025’ for public comments. As per the draft, the securitisation of stressed assets may also involve a distinct class of facility providers, the resolution managers (ReM) responsible for administering resolution/recovery of the underlying stressed exposures. ReM shall typically have experience in workout of NPAs, including drawing of effective business plans, recovery strategies, loan management, legal network, reporting and IT (also for data quality purposes). The draft also proposes requirements to be met by lenders who are investors in securitisation exposures; capital requirements for securitisation notes; and reporting and disclosures, among others.

Comments may be submitted by 12^th May, 2025.
 

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