RBI securitization, positive asset transfer standards, according to Fitch Ratings

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MUMBAI : Reserve Bank of India (RBI) securitization and asset transfer guidelines, announced last month, are positive for the structured finance market, but credit neutral for asset-backed securities transactions Indians rated by Fitch Ratings, the rating agency said.

He said most of the additional prescribed elements are already taken into account in his analysis of existing transactions. The asset transfer guidelines, however, put an end to the current form of covered bond transactions, he added.

The guidelines push India’s structured financial transactions to have greater transparency, including mandating a minimum level of clarity in payment cascades and disclosing such things as early amortization triggers. Trustees and special purpose vehicles (SPVs) in a securitization should also not have any ties to the originator. Information about credit enhancement resets should be disseminated by rating agencies via a press release. Greater clarity has also been provided, in particular by prohibiting the use of liquidity facilities to cover credit losses or to help increase the flow of excess spread to the originator.

“The RBI also put the onus on originators to provide adequate information to current and potential investors and prescribed a minimum amount of information to be shared for new transactions and regular monitoring. The central bank has pushed for public sharing of external ratings, discouraging private ratings in the Indian securitization market, ”the rating agency said.

The regulator also provides incentives to move to less complicated transactions, with simple, transparent and comparable (STC) guidelines, easier compliance rules and lower risk weights. The central bank also prescribed a minimum level of pool credit factors to be met for STC transactions, such as pool granularity and homogeneity.

“We anticipate an increase in the volume of residential mortgage-backed securities and the start of warehousing transactions in India in the medium to long term. The central bank is working to increase mortgage-backed securitizations by keeping the required minimum holding period (MHP) to six months and the minimum retention requirement to 5%, which were recently lowered. Resale of loans was allowed, but with an additional MHP required on the middleman’s books, facilitating warehousing transactions, ”he added.

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