Home / Economy / Framework for bad loans’ securitization to be set up

The Reserve Bank of India (RBI) will introduce a framework for securitization of stressed assets to provide an alternative mechanism for securitization of bad loans, in addition to the existing route involving asset reconstruction companies (ARCs).

The regulator said it will soon issue a discussion paper on the proposed framework. Securitization involves pooling together a set of assets and repackaging them into interest-bearing securities.

In September 2021, RBI had issued the revised framework for securitization of standard assets. On Friday, it said that with regard to securitization of non-performing assets, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act of 2002 currently provides a framework for such securitizations through licenced ARCs.

“However, based on market feedback, stakeholder consultations and the recommendations of the Task Force on Development of Secondary Market for Corporate Loans (RBI, 2019), it has been decided to introduce a framework for securitisation of stressed assets in addition to the ARC route, similar to the framework for securitisation of standard assets," it said.

Experts said this will add another channel for bad loan resolution. RBI’s announcement comes at a time when India’s bad bank – the National Asset Reconstruction Company Ltd (Narcl) – which will take over bad loans from lenders, is yet to take off.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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