RBI's proposed framework on sale of loan exposures can lead to long-term funding structures: Ind-Ra '
Removal of the minimum retention requirement, resale of purchased loans post a 12-month holding period and sell down of single standard assets are welcome moves to improve liquidity in the loan market, India Ratings and Research (Ind-Ra) said.
Earlier this month, the Reserve Bank came out with the draft of a comprehensive framework for sale of loan exposures, which could be standard, sub-standard or non-performing assets (NPAs), as part of the overall exercise to deepen the market for lending."The proposed framework could facilitate long-term funding structures and encourage stronger bankruptcy remoteness in direct assignment transactions. The sale of stressed loans shall improve the speed of identification and resolutions of stress in the system," the agency said. Advertisement
An independent credit evaluation at the time of loan purchases, increased digitisation of collateral charges created while lending and standardisation of loan documentations could be focus areas that can further improve the lending landscape, it recommended.
The framework also encourages market participants to obtain an external credit rating for pools of standard asset during their purchase, it said, adding such a move can further enhance transparency and improve price discovery.The agency said clarity is required on certain aspects though.
It said the draft framework disallows the use of credit enhancement in direct assignment transactions which would make it difficult for transferors to benefit from the partial credit guarantee scheme (announced in August 2019 and extended till March 31, 2021).The framework also pitched for transactions availing partial credit guarantee under the scheme to be treated as an exception to this provision in the framework, the agency added. Also, it requires the transferor to ensure registration of the security interest for the exposure and subsequent transfer of the interest to the transferee along with any necessary documentation to such effect, it said. Advertisement
This could in various cases require modification to the charge documents – which could provide be operationally onerous and could result in the incidence of various regulatory levies such as stamp duty, Ind-Ra said. AA MKJ
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