RBI tightens loan securitisation norms for NBFCs

The Reserve Bank of India (RBI) has tightened loan securitisation norms for non-banking finance companies (NBFC) by setting a 95 per cent cap on the loans it is selling to another company.

The NBFC will have to retain a minimum 5 per cent of the loan being sold to another entity. The revised guidelines issued by the RBI also stipulate that NBFC cannot sell or securitise a loan unless three monthly installments have been paid by the borrower.

This is being done to prevent unhealthy practices like origination of loans for the sole purpose of securitisation and in order to align the interest of the originator with that of the investors and with a view to redistribute credit risk to a wide spectrum of investors, RBI said in a notification today.

It was felt necessary that originators should retain a portion of each securitisation and ensure more effective screening of loans, the central bank said.

RBI said a loan up to two years could be securitised only after payment of three monthly installments by the borrower. The limit for loans between two and five years is six monthly installments and above five years, 12 monthly installments.

With regard to minimum retention requirement (MRR) for securitisation, RBI said the NBFCs selling loans would have to retain 5 per cent of the amount if the loan is for less than two-year period and 10 per cent if it is of over two years.