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MUMBAI : The Reserve Bank of India’s (RBI) securitization and asset transfer guidelines, announced last month, are positive for the structured finance market, but credit neutral for Fitch Ratings' rated Indian asset-backed securities transactions, the rating agency said.

It said that most of the additional items prescribed are already considered in its analysis of existing transactions. The asset transfer guidelines, however, halt the current form of covered bond transactions, it added.

The guidelines push Indian structured finance transactions to have greater transparency, including the mandate for a minimum level of clarity in payment waterfalls and disclosure for items such as early amortization triggers. The trustees and special purpose vehicles (SPVs) in a securitization should also not have any connections with the originator. Information on credit enhancement resets needs to be disseminated by rating agencies via a press release. Greater clarity was also provided, including disallowing the use of liquidity facilities to cover credit losses or help increase excess spread flow to the originator.

“The RBI also put the onus on originators to provide adequate information to current and prospective investors and prescribed a minimum amount of information to be shared for new transactions and regular monitoring. The central bank pushed for public sharing of external ratings, disincentivizing private ratings in the Indian securitization market," the rating agency said.

The regulator is also providing incentives to move to less complicated transactions, with simple, transparent and comparable (STC) guidelines and easier compliance rules and lower risk weights. The central bank also prescribed a minimum level of pool credit factors to be adhered to for STC transactions, such as pool granularity and homogeneity.

“We expect a volume increase for residential mortgage-backed securities and the start of warehousing transactions in India in the medium-to-long term. The central bank is pushing to increase mortgage-backed securitizations by keeping the minimum holding period (MHP) requirement at six months and minimum retention requirement at 5%, which were lowered recently. The resale of loans has been allowed, but with an additional MHP required in the intermediary’s books, facilitating warehousing transactions," it added.

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