Page 31 - Banking Finance February 2022

ARTICLE

2012 Revisions of RBI Guidelines, Mandating MRR & The committee released its report on dated 5
MHP---Banks, NBFCs and other FIs securitizing their September 2019. Specific measures were recommended
standard assets to retain "skin in the game" and have to facilitate second market trading in securitized
a continuing stake in the performance of the securitized instruments. They recommended various measures to
assets, referred to as minimum retention requirement improve the securitisation market in India.
("MRR"). The loan or financial asset must stay on the To boost securitisation market in India, RBI temporarily
books of an originator for a minimum length of time,
relaxed the MHP requirements for NBFC originators
being the minimum holding period ("MHP") before it
upto 31 December 2019. RBI further extended the
can become a part of the pool to be securitized. The
relaxation of MHP till 30 June 2020. By this relaxation
MRR and MHP provided for a more effective screening of MHP a larger asset pool were eligible for
of loans by the Banks, NBFCs and other FIs prior to the securitisation by NBFCs. This led to a surge in
securitisation of such assets.
securitisation and assignment of auto loans /vehicle
In September 2018, the Indian NBFC sector suffered a loans/finance lease receivables/micro-finance/
setback due to Infrastructure Leasing & Financial consumer durable loans & education loans.
Services Limited ("IL&FS") crises.
The financial sector faced another roadblock in mid- Conclusion:
2019, when housing finance company, Dewan Housing The success of securitization depends upon the ability of
Finance Limited ("DHFL") failed to make interest original borrower to repay their debt against which
payments to its bond holders, leading to its credit rating securitisation has been done. It is also fully dependent upon
being downgraded to "D".
the Scientific Credit Rating System, Standardized loan
The resulting panic in the market saw traditional documentation system & Proper Accounting System. To add
sources of funding disappear for other NBFCs, and raised to its success the SPV should be separate organisation,
concerns on debt servicing. With such a sudden drop in Instruments arising out of securitisation should be listed in
willing lenders, NBFCs looked to securitize their Stock Exchange& adequate Guidelines should be given by
standard assets to finance their funding requirements, regulators.
and the Indian market witnessed a growth in the
volume of securitisation.
The securitisation market will see an increased spread
In the first quarter of the financial year 2019-2020, the across asset classes and products. Securitisation is likely to
Indian securitisation market saw the highest issuance remain on the upward curve in the near future due to
volumes as compared to the first quarter of any financial various developments on the regulatory front, continuing
year. (with 56% y-o-y growth over the same period in need for liquidity by Banks/NBFCs/FIs, growing appetite of
the previous fiscal year) investors, Innovation of new and varied products and
The RBI has constituted a special committee to review portfolios by NBFCs and finally the regulator's willingness to
the state of mortgage-backed securitisation in India. further develop the market.

Tata Motors to sign a retail finance MoU with

Bandhan Bank

Tata Motors has partnered with Bandhan Bank to sign a retail finance MoU, offering finance options to all its pas-
senger vehicle customers. As part of the tie-up, Bandhan Bank will provide loans to Tata Motors' customers at an
interest rate starting from 7.50 per cent.
This scheme will offer a maximum of 90 percent financing on the total on-road cost of the vehicle.Rajan Amba, Vice
President, Sales, Marketing & Customer Care, Passenger Vehicle Business Unit, Tata Motors said, "We, at Tata Mo-
tors, have always aimed to make our personal mobility solutions more affordable and accessible for individuals and
families at beneficial rates. We hope that these offers will make the process of purchasing our cars much easier for
customers and that this will positively impact their overall buying experience of Tata cars."

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