REGIONAL COMMITTEES: ASIA
RBI’ S 2025 Market-Driven Securitisation Framework: A New Era For Resolution Of Stressed Assets In India
By Nilang Desai 1
The Reserve Bank of India(“ RBI”), India’ s financial sector regulator has been exploring various strategies to address the challenges associated with the recovery and resolution of non-performing assets(“ NPAs”) and identify paths to deepen the stressed asset ecosystem. In a substantial shift towards democratizing this market, the RBI, on April 9, 2025, released a draft framework introducing a market-based mechanism for the securitisation of stressed assets. 12 The Draft RBI( Securitisation of Stressed Assets) Directions, 2025(“ SSAF 2025”) is intended to supplement the existing routes that are available for transfer of stressed assets, i. e. through asset reconstruction company(“ ARC”) route set up under the
28 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(“ SARFAESI”). 1
The SSAF 2025, draws on recommendations from its‘ Task Force on Development of Secondary Market for Corporate Loans’ and subsequent discussion papers, 23 to foster a more dynamic and transparent secondary market for stressed assets by providing banks
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With thanks to Avinash Subramanian( Partner, AZB & Partners), Saloni Thakkar( Partner, AZB & Partners) and Aashirwa Baburaj( Associate, AZB & Partners) for their assistance with this piece.
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Available at: Draft Reserve Bank of India( Securitisation of Stressed Assets) Directions, 2025- RBI
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Available at: Reserve Bank of India- Reports, RBI releases Discussion Paper on Securitisation of Stressed Assets Framework( SSAF)- RBI with an effective tool to manage and reduce their NPA burden by enabling the transfer of stressed assets to a special purpose entity. A. Applicability and Regulatory Scope The draft framework is applicable to all scheduled commercial banks( excluding regional rural banks), All India Financial Institutions( NABARD, NHB, EXIM Bank, SIDBI and NaBFID)(“ AIFIs”), small finance banks, non-banking financial companies(“ NBFCs”), housing finance companies(“ HFCs”), and overseas branches of Indian banks( collectively referred to as the“ Eligible Sellers”). B. Concentration and Homogenisation The SSAF 2025 at the outset lets Eligible Sellers to securitise a pool of stressed assets i. e. loans where there is a payment default. It sets out specific concentration norms to ensure that pool does not suffer from risks associated with one asset. In addition to concertation norms the SSAF requires, at least 90 % of the total outstanding amount in the underlying pool must be classified as NPAs( i. e. loans wherein more than 90 days have passed since occurrence of a payment default) for the stressed pool to undergo securitization.
To ensure homogeneity and manage risk, the framework requires that underlying loans in each pool be of a similar nature. To elaborate, loans to micro enterprises and personal or business loans to individuals not exceeding INR 50 crores( approximately USD 5,900,000)(“ Para 6( a) Loans”) must be grouped separately from other loan types. Additionally, the stressed pool may include a limited proportion( up to 10 %) of standard assets, subject to standard securitisation norms for that portion.
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