C. Resolution Managers
The SSAF 2025 introduces the role of Resolution Manager(“ ReM”), which is tasked with administering the resolution and recovery of the underlying stressed exposures. While for transactions involving Para 6( a) Loans, the ReM is required to be an RBI-regulated entity( such as a scheduled commercial bank, ARC, or NBFC), in a significant leg up to the insolvency professional ecosystem, the RBI has proposed to permit insolvency professionals and insolvency professional entities to act as ReMs for other loans. D. Risk Retention The SSAF 2025 allows the Eligible Sellers to retain a maximum risk retention of 20 % of the total securitisation exposure with any exposure above 10 %( and up to 20 %) being recognized as a first loss piece for prudential purposes. Where the originator also acts as the ReM, a minimum risk retention requirement is also imposed to align interests and ensure accountability. Accordingly, in case the originating bank is acting as ReM for exposures it has transferred, it is required to retain at least 5 % of the total securitisation notes. E. Permitted Investors Apart from disqualifications attracted due to Section 29A of the Insolvency and Bankruptcy Code, 2016( i. e. connected to entities that have inter alia defaulted on loan repayments) there are no eligibility criteria prescribed to who can be an investor. This is a substantial difference from the requirements set out under SARFAESI which has strict eligibility norms for those that can invest in the securitization trusts set up by ARC. F. Transaction Mechanics The sale of assets is required to be conducted on a cash basis. Unlike sale to ARCs which permit issuance of security receipts of upto 87 % as consideration for transfer of stressed loans, the requirement to pay only cash would mean that substantial inflow of upfront cash can be seen by originating banks.
G. Capital Treatment and Credit Enhancement
Capital requirements for securitisation notes are to be determined based on risk weights assigned by credit rating agencies. The framework permits supporting facilities such as credit enhancement, liquidity, and servicing facilities, subject to the provisions of the Master Direction – Reserve Bank of India( Securitisation of Standard Assets) Directions, 2021. Notably, credit enhancement( other than contractual risk retention or permissible first loss default guarantee) is restricted to losses on the senior tranche only, thereby limiting systemic risk. H. Conclusion RBI’ s initiative with the SSAF 2025 represents a significant shift in India’ s legal and regulatory landscape for distressed asset resolution. By facilitating market-driven pricing, expanding the investor base, and supplementing the ARC route under the SARFAESI mechanism, the SSAF 2025 is poised to deliver more efficient, transparent, and effective resolution pathways for the Indian banking sector. This is a long-awaited measure which will widen investment routes by foreign investors into non-performing loans beyond the erstwhile ARC / security receipts route, enable differential risk allocation, and provide pricing flexibility. Whilst the sole ARC route created for some international investors a bottlenecked conduit to distressed assets, diluting the regulatory monopoly of ARCs via this alternative route may bring in competition that keeps the good ARCs involved and the investors with options – all towards creating more efficiency and productivity in the distressed asset resolution space.
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