RBI Proposes Stressed Assets Securitisation Framework For Quicker Resolution

The Reserve Bank of India released a discussion paper on the securitisation of stressed assets framework as a way to improve the quality of the sale and resolution of such accounts. The regulator’s proposal comes on the heels of an announcement it made in September 2022. In September 2019, a task force for the development of a secondary market for corporate loans suggested the creation of a similar framework for non-performing assets.

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Need of The RBI’s Proposal:

The Non – Performing assets, written–off assets, and restructured loans are grouped together as Stressed Assets. In simple words, there is no profitable revenue from these assets. Liquidating stressed assets are highly challenging. To make the sale process of these stressed assets easier and faster, the Reserve Bank of India has introduced a Securitisation Framework.

What does the Framework Say:

The bad loans are usually sold under the SARFESI Act. Now under the Stressed Asses Securitisation Framework, RBI proposes a special entity approach to selling bad loans. A servicing entity appointed by this Special Entity will manage the stressed assets. They will operate under a fee structure. The fee is an incentive for their hard work. It will boost their performance and increase recoveries.

The next aspect that the framework focuses on, is the nature of the asset. The RBI is yet to finalize its opinion in this area. The apex bank is asking for suggestions from the stakeholders to fix this. RBI is asking what should be the value of the asset. That is, the value of the asset being sold to the Special Entity Purpose. RBI asks if the value should be small and pertain only to small businesses or be extended to corporates.