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The Reserve Bank of India’s curb on securitising loans having residual maturity of less than 365 days may hit the sale of short-term advances like micro-finance, personal loans and gold loans for a while, rating agencies said on Thursday.
The change could make a certain portion of loan books ineligible for securitisation, or converting an asset into marketable securities for raising cash by selling investors. The RBI amended its regulation on Securitisation of Standard Assets on December 5, 2022.
CRISIL Ratings said in a statement the curb would limit the issuance of pass-through certificates (PTCs) backed by shorter tenure loans originated by non-banking finance companies (NBFCs).
The total pass through certificates (PTC) volume in FY22 was Rs 57,000 crore of which MFI PTC securitisation constituted around nine per cent. The quantum of such issuances could go down in the near term as the pool of assets to be securitised would decrease, India Ratings and Research said.
Gold loans have a tenor ranging from six to 24 months. In the past two years, gold loan securitisation has shown a pickup. Lenders have to keep the loan for at least three months on their books before considering it for securitisation. With this Minimum Holding Period (MHP) for requirement, it would not be possible to securitise gold loans having a remaining tenor less than 12 months or a total tenor of 15 months or below, agency added.
The restriction on residual maturity of loans is not expected to apply to direct assignment (DA) transactions. Gold loan securitisation mostly happens via the DA route. This would thus cushion the impact on gold loan financiers, who also enjoy the safety of collateral. On the other hand, credit losses are usually higher for unsecured personal loans, CRISIL said.
Separately, the MHP for mortgages has now been linked to the date of full disbursement, or registration of security interest (with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India), whichever is later. India Ratings said this change may not have a significant impact on commercial and real estate securitisation, as investors typically do not want partially disbursed loans to be part of the securitisation pool.
RBI in amendments to regulation also clarified the definition of minimum ticket size for securitisation. The minimum investment for primary market transactions will now be Rs one crore. The change in regulation could lead to restrictions on the minimum pool size. The fallout would be primary investments in securitisation transactions can only be accessed by sophisticated investors or high-net worth investors only.
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