Indian Markets Set for Securitisation Boost: SEBI Harmonises Rules with RBI

In a move poised to reshape India's financial landscape, the Securities and Exchange Board of India (SEBI) has put forth proposals to streamline and ease securitisation norms. This initiative aims to align SEBI's framework with existing Reserve Bank of India (RBI) regulations, particularly for entities governed by the central bank.

Securitisation is a financial process where illiquid assets, like loan portfolios, are pooled together and converted into marketable securities that can be sold to investors. It's a vital tool for financial institutions to manage risk, free up capital, and improve liquidity. However, differing regulatory approaches have sometimes created complexities.

SEBI's key proposals include:

• Relaxing Exposure Caps: A significant change involves easing the 25% single borrower exposure cap for securitised debt instruments. This relaxation is particularly crucial for entities regulated by the RBI, allowing for greater flexibility and potentially broader participation in the securitisation market.
• Shifting Disclosure Responsibilities: The responsibility for disclosures is proposed to shift from the originator (the entity creating the assets) to the servicer (the entity managing the securitised assets). This move is expected to enhance post-securitisation transparency and accountability, as the servicer is directly involved in the ongoing performance of the underlying assets.
• Modifying SPDE Governance: SEBI also suggests modifications to the governance framework for Special Purpose Securitisation Entities (SPDEs). These entities are crucial vehicles for pooling assets in securitisation transactions, and clearer governance could facilitate smoother operations and single-asset deals.

The overarching goal of these proposed amendments is to foster a more unified and efficient regulatory environment. By aligning its norms with the RBI, SEBI aims to reduce regulatory arbitrage, boost the market for single-asset securitisation deals, and generally enhance transparency across the board. Should these proposals be implemented, they could lead to a deeper and more liquid securitisation market in India, offering new avenues for fundraising and investment.

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