RBI open to consider securitisation in restricted classes: M. Rajeshwar Rao

As a step to boost credit markets, the Reserve Bank of India (RBI) is open to allowing securitisation in some asset classes where there are restrictions on such activity, according to its Deputy Governor M. Rajeshwar Rao.

The market for securitisation products is quickly catching up in India and is poised to grow manifold in the years to come. Our framework on securitisation, issued in 2021, carries a negative list that restricts a few asset classes from being securitised. However, this is not a fixed exclusion.

The RBI constantly monitors the growth and maturity of the market. The regulator is prepared to make a well-thought-through decision if some restricted assets could be securitised in the current environment, Rao said in his inaugural address at the Seminar on Banking Regulation, Intermediary Soundness, and System Stability at IIM Kozhikode. The speech was delivered on 4 September 2023, and its transcript was released today.

For standard assets, the securitisation framework permits a diverse set of investors to subscribe to the securitisation notes of underlying loans. By involving a wider set of participants, it is envisaged that credit markets will become more vibrant, effective, and transparent.

Traditionally, the credit market in India has been tightly regulated, primarily driven by the need to ensure banking and financial stability. However, it has been acknowledged that allowing a diverse set of participants in the market may actually help it become more vibrant and efficient.

Therefore, the Reserve Bank took the first step towards liberalising the credit markets by allowing entities outside its regulatory purview, but regulated by other financial sector regulators, to acquire stressed loans under the transfer of loan exposure framework.