Reserve Bank changes norms for securitization of loans by NBFCs
By Vaibhav Aggarwal
Aug 22, 2012
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Banking regulator, the Reserve Bank of India (RBI) has revised the norms pertaining securitization of loans by nonbanking finance companies (NBFC). As per the new rules, the NBFC must retain atleast 5% of loan sold off as part of securitization. Auto loans is one of the sector, which will be effected by the new move, since there are a lot of NBFCs in the vehicle financing segment.

RBI guidelines also mandate that the NBFC can not securitize a loan before it has received 3 or more monthly payments from the borrower. RBI said that the move is to curb the 'unhealthy practice' and risk distribution to a wide range of stakeholders.

For loans of duration 2 years to 5 years, the company must receive 6 insallments before securitizing and 12 installments for loans above five years.

RBI also directed the NBFCs to be more transparent, and provide relevant data and credit information of the accounts to the prospective investors. Further, the NBFCs should formulate due diligence policies to be practiced by its executives to meet the know your customer (KYC) norms.

The central bank also said that NBFC should not go for re-securitization of assets, and bundling of assets with different risk profile has also been prohibited.

New guidelines would be implemented in two phases by the end of October. The RBI had recently revised the guidelines for securitization by banks.

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