RBI Issues Comprehensive Directions on Securitisation Transactions for Commercial Banks (2025)
The Reserve Bank of India has introduced the Commercial Banks – Securitisation Transactions Directions, 2025, establishing a comprehensive regulatory framework to ensure safe, transparent, and prudent securitisation practices in the banking sector. Securitisation, which enables banks to redistribute credit risk by converting loan exposures into tradable securities, plays a crucial role in enhancing liquidity and supporting fresh credit generation. However, complex or opaque structures can pose systemic risks—an issue the Directions aim to address.
The framework specifies eligible asset classes, explicitly prohibiting synthetic transactions, re-securitisation, revolving credit exposures, and certain high-risk or short-tenor loans. Banks must comply with Minimum Holding Period (MHP) requirements and retain a mandated Minimum Retention Requirement (MRR) to ensure continued skin-in-the-game and responsible origination.
The Directions mandate strict underwriting standards, clearly defined cash-flow waterfalls, transparent trigger disclosures, and safeguards for investor rights. Originators are restricted from retaining more than 20% exposure in any securitisation scheme, ensuring meaningful risk transfer.
Special Purpose Entities (SPEs) must remain bankruptcy-remote, independent, and operated at arm’s length. Detailed accounting norms govern recognition of gains, treatment of interest-only strips, and timing of sale consideration.
By strengthening governance, disclosure, and risk-management standards, these Directions aim to promote financial stability and support a robust securitisation market in India.
The Reserve Bank of India’s 2025 Directions on securitisation transactions emphasize Simple, Transparent, and Comparable (STC) securitisations to promote prudence, transparency, and regulatory capital efficiency. STC-compliant securitisations require homogeneous assets, clearly defined payment streams, robust performance history, and consistent underwriting standards. Only assets meeting eligibility criteria and verified by independent legal review are included, with repayment relying primarily on principal and interest flows.
Investors must receive detailed, timely data, including loan-level and portfolio-level reports, to conduct due diligence and ongoing monitoring. The framework also mandates clear definitions of voting and enforcement rights, cash flow structures, delinquency remedies, and investor reporting to maintain transparency and trust.
RBI outlines standards for supporting facilities—credit enhancements, liquidity, underwriting, and servicing—ensuring these are provided at arm’s length, documented, and limited in scope to prevent disguised credit risk. Credit enhancements can be reset under strict conditions, while liquidity facilities are intended only for temporary cash flow mismatches.
Banks investing in securitisation exposures must perform rigorous due diligence, stress testing, and ongoing monitoring, with capital requirements aligned to prudential norms. Disclosures to investors, auditors, and RBI ensure transparency throughout the securitisation lifecycle. This framework strengthens market discipline, protects investors, and enhances the resilience of India’s securitisation market.
