Cerc To Release Grid Code, Tariff Formula Today

In a move that could force a change in the way securitisation is done in India, the Reserve Bank of India (RBI) has asked ICICI Ltd to treat all securitisation deals undertaken by it as structured loans.

The apex bank has conveyed this to the premier financial institutions during a meeting held last week. The meeting was convened by the RBI to discuss the issues relating to securitisation for which the former is expected to announce guidelines shortly.

The apex bank told ICICI that since the securitisation deals undertaken by the institution involved recourse to the originator, they could not be treated as securitisation. The deals should be treated as structured loans, the RBI said.

 

This essentially means that the assets stay in the book of ICICI and its balance sheet is not freed to undertake fresh risks. It is pointed out that whenever there is recourse to the originator, in this case ICICI, the risk continues to be on the books of the institution, which involves earmarking capital for the risk-weighted assets.

Ideally, in a securitisation deal the final holder of the paper should bear all the risk on the instrument. Hence, in case ICICI has lent to company A and the loan has been securitised and the paper parked with a bank, in case of a default by company A, the bank should approach the company and not ICICI.

ICICI had undertaken securitisation worth over Rs 2,000 crore in various sectors, including oil and natural gas, petrochemicals, power and steel.

The financial institutions, including Industrial Development Bank of India and ICICI, have approached the RBI to allow them to undertake securitisation as their exposure to some sectors like steel and power is nearing the sectoral limit.

The meeting was attended by the in-house panel of the RBI under deputy governor Y V Reddy, Icra,

ICICI and investment bankers SBI Caps. SBI Caps had approached the apex bank through its parent bank, State Bank of India, to allow it to undertake securitisation deals.

The meeting discussed several issues regarding the legal, taxation, psychological and RBI-related issues which could be sorted out in announcing the securitisation guidelines, sources familiar with the meeting said.

The Reserve Bank has also asked the Institute of Chartered Accountants of India (ICAI) to chart out guidelines for treating the securitisation transaction in the books of