Sebi sets ₹1 crore minimum, mandates demat for securitised debt instruments

Markets regulator Sebi has mandated a minimum ticket size or investment threshold of Rs 1 crore for the RBI-regulated originators and unregulated entities engaged in securitisation activities.

Securitised Debt Instruments (SDIs) are financial products created by pooling together various types of debt -- such as loans, mortgages, or receivables -- and then selling them as securities to investors. This process, known as securitisation, allows the originator (such as a bank) to convert illiquid assets into liquid ones, providing an alternative source of funding.

Investors in these instruments receive returns based on the performance of the underlying debt pool, and the risk is spread across multiple assets, offering potentially attractive returns.

"The minimum ticket size for issuance of a securitised debt instrument shall be rupees one crore," Sebi said in a gazette notification.

Further, the minimum ticket size for subsequent transfers of a securitised debt instrument will be Rs 1 crore for originators, which are not regulated by the Reserve Bank of India (RBI). For securitised debt instrument with listed securities as underlying, the minimum ticket size amount will be that of highest face value among such securities.

The new rules stipulated that public offers for SDIs to remain open for a minimum of three days and a maximum of ten days, with advertisement requirements aligned with Sebi's regulations for non-convertible securities. Additionally, the regulator said that all securitised debt instruments should be issued and transferred exclusively in demat form.

Sebi has prescribed a minimum track record requirement for originators, requiring a minimum of three years of operating experience.

Regarding risk management, Sebi said that originators will retain a minimum risk retention of 10 per cent of the securitised pool or 5 per cent for receivables with a maturity of up to 24 months.

To ensure that originators maintain an interest in the underlying assets, Sebi has specified a minimum holding period requirement of three months in case of loans with tenor of up to two years; and six months in case of loans with tenor of more than two years.

The market regulator included an optional clean-up call for originators, allowing them to repurchase up to 10 per cent of the original value of the assets. This call is optional and intended to help manage the pool's longevity without mandating additional commitments from the originator.

The updated definition of "debt/receivables" limits permissible underlying assets to listed debt securities, accepted trade receivables, rental incomes and equipment leases while disallowing re-securitisation and synthetic securitisation.

To give this effect, Sebi has amended the 'issue and listing of securities debt instruments and security receipts' rules.