Reserve Bank of India (Commercial Banks – Securitisation Transactions) Directions, 2025

RBI/DOR/2025-26/160 DOR.STR.REC.79/21.04.177/2025-26 November 28, 2025

Reserve Bank of India (Commercial Banks – Securitisation Transactions) Directions, 2025

Table of Contents Chapter I- Preliminary A. Short title and commencement B. Applicability C. Definitions Chapter II - General requirements for securitisation A. Assets eligible for securitisation B. Minimum Retention Requirement (MRR) C. Origination Standards D. Payment priorities and observability E. Limit on Total Retained Exposures by Originators F. Issuance and Listing G. Conditions to be satisfied by the special purpose entity H. Representations and Warranties I. Accounting Provisions Chapter III - Simple, transparent and comparable (STC) securitisations A. STC Securitisations- Criteria for regulatory capital purposes B. Disclosure and Prudential Oversight for STC Securitisations Chapter IV - Provision of facilities supporting securitisation structures A. General Conditions B. Credit Enhancement Facilities C. Reset of credit enhancements D. Liquidity Facilities E. Underwriting Facilities F. Servicing Facilities Chapter V - Requirements to be met by a bank who is an investor in securitisation exposures A. Due Diligence Requirements B. Stress Testing C. Credit monitoring and valuation Chapter VI - Capital requirements for Securitisation exposures and Disclosures Norms A. Capital requirements for securitisation exposures B. Disclosures Chapter VII - Repeal and other provisions A. Repeal and saving Application of other laws not barred B. Interpretations Annex I

Introduction

Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. While complicated and opaque securitisation structures could be undesirable from the point of view of financial stability, prudentially structured securitisation transactions can be an important facilitator in a well-functioning financial market in that it improves risk distribution and liquidity of lenders in originating fresh loan exposures.

Accordingly, in exercise of the powers conferred by Sections 21 and 35A of the Banking Regulation Act,1949, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest and in the interest of banking policy so to do, hereby, issues the Directions hereinafter specified.

Chapter I- Preliminary

A. Short title and commencement

1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Securitisation Transactions) Directions, 2025.

2. These Directions shall come into effect on the day these are placed on the official website of the Reserve Bank of India.

B. Applicability

3. These Directions shall be applicable to commercial banks (hereinafter collectively referred to as 'banks' and individually as a 'bank').

For the purpose of these Directions, ‘Commercial Banks’ mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949.

C. Definitions

4. For the purpose of these directions, the following definitions apply:

• (1) “bankruptcy remote" means the unlikelihood of an entity being subjected to voluntary or involuntary bankruptcy proceedings, including by the originator or the creditors to the originator;
• (2) “clean-up call” means an option that permits the originator to call the underlying exposures or the securitisation exposures when the outstanding value of the underlying exposures falls below a pre-defined threshold, thereby extinguishing the remaining securitisation exposures of all parties;
• (3) “credit enhancement” means a contractual arrangement in which an entity mitigates the credit risk associated with a securitisation exposure and, in substance, provides some degree of added protection to other parties to the transaction so as to mitigate the credit risk of their securitisation exposures;
• (4) “early amortisation provision” means a mechanism that, once triggered, accelerates the reduction of the investor’s interest in underlying exposures of a securitisation structure and allows investors to be paid out prior to the originally stated maturity of the securitisation notes issued;
• (5) “excess spread (or future margin income)” means the difference between the gross finance charge collections and other income received by the special purpose entity (SPE), and securitisation notes interest, servicing fees, charge-offs, and other senior SPE expenses.
• (6) “exposure amount” of a securitisation exposure means the sum of the on-balance sheet amount of the exposure or carrying value – which takes into account purchase discounts and writedowns/specific provisions the bank took on this securitisation exposure – and the off-balance sheet exposure amount, where applicable.
• (7) "first loss facility" means the first level of financial support provided by the originator or a third party to improve the creditworthiness of the securitisation notes issued by the SPE such that the provider of the facility bears the part or all of the risks associated with the assets held by the SPE;
• (8) “implicit support” means the protection arising when a bank provides support to a securitisation in excess of its predetermined contractual obligation;
• (9) “interest-only strip (I/O)” means an on-balance sheet asset of the originator that represents a valuation of cash flows related to future margin income; Provided that if the interest-only strip is subordinated, it shall serve the purpose of credit enhancement and shall be referred to as credit-enhancing interest-only strip.
• (10) “Lenders” shall mean the following entities unless specifically mentioned otherwise:
• (i) Scheduled Commercial Banks (excluding Regional Rural Banks);
• (ii) All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);
• (iii) Small Finance Banks (as permitted under Reserve Bank of India (Small Finance Banks – Securitisation Transactions) Directions, 2025); and,
• (iv) All Non-Banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs).
• (11) “mortgage backed securities” mean securitisation notes issued by the special purpose entity against underlying exposures that are all secured by commercial or residential real estate mortgages;
• (12) "originator" refers to a lender that transfers from its balance sheet a single asset or a pool of assets to an SPE as a part of a securitisation transaction and would include other entities of the consolidated group to which the lender belongs; Explanation: Originator may not be the same lender which had initially sanctioned one or more of the exposures underlying a securitisation transaction since loans purchased from lenders can also be sold to SPEs for the purpose of securitisation.
• (13) “overcollateralisation” means any form of credit enhancement by virtue of which underlying exposures are posted in value which is higher than the value of the securitisation notes;
• (14) “replenishment” means the process of using the cash flows from the securitised assets to acquire more assets in the manner disclosed upfront in the prospectus of the scheme, which will continue for a pre-announced replenishment period, following which the securitisation structure switches to an amortising one; Provided that assets purchased during the replenishment period shall be purchased from the same originator(s) of the assets underlying the securitisation notes already issued under the scheme.
• (15) “residential mortgage backed securities (RMBS)” mean securitisation notes issued by the special purpose entity against underlying exposures that are all secured by residential mortgages;
• (16) “re-securitisation exposure” means a securitisation exposure where at least one of the underlying exposures is a securitisation exposure;
• (17) “standard assets” for the purpose of these directions shall mean exposures which are not classified as non-performing asset;
• (18) “second loss facility” means a second level of financial support providing a second (or subsequent) tier of protection to the securitisation notes issued by the special purpose entity against potential losses not covered by the first loss facility, and is invoked only after the first loss facility has been drawn down and repudiated or exhausted, or the first loss provider is under insolvency or bankruptcy or liquidation;
• (19) “securitisation” means a structure where a pool of assets are transferred by an originator to a SPE and the cash flow from this pool of assets is used to service securitisation exposures of at least two different tranches reflecting different degrees of credit risk, where payments to the investors depend upon the performance of the specified underlying exposures, as opposed to being derived from an obligation of the originator; Provided that the pool containing a single asset eligible to be securitised is also permitted. Provided further that a securitisation structure may have tranches with different maturities.
• (20) “securitisation exposures” include but are not restricted to exposures to securitisation notes issued by the special purpose entity including asset-backed securities and mortgage-backed securities, credit enhancements, underwriting commitments, liquidity facilities, interest rate or currency swaps, credit derivatives and tranched cover; Explanation: Reserve accounts, such as cash collateral accounts, which is earmarked to absorb credit losses arising from the securitisation and is recorded as an asset by the originator must also be treated as securitisation exposures.
• (21) “securitisation notes” mean securities issued by the special purpose entity as a part of securitisation;
• (22) “senior tranche” means a tranche which is effectively backed or secured by a first claim on the entire amount of the assets in the underlying securitised pool; Provided that where all tranches above the first-loss piece are rated, the most highly rated position would be treated as a senior tranche. Provided that when there are several tranches that share the same rating, only the most senior tranche in the cash flow waterfall would be treated as senior (unless the only difference among them is the effective maturity). Provided that when the different ratings of several senior tranches only result from a difference in maturity, all of these tranches should be treated as senior tranches.
• (23) “special purpose entity (SPE)” means a company, trust or other entity organised for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the credit risk of an originator; Explanation: Any reference to SPE in these directions would also refer to the trust settled or declared by the SPE as a part of the process of securitisation.
• (24) “subordinate tranche” means any tranche that is junior to the senior tranche(s);
• (25) “synthetic securitisation” means a structure where credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or credit guarantees that serve to hedge the credit risk of the portfolio which remains on the balance sheet of a bank; Explanation: The above definition does not include the use of instruments permitted to banks for hedging under the current regulatory instructions.
• (26) “tranche” means a contractually established segment of the credit risk associated with an exposure or a pool of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in another segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments; Explanation: Securitisation notes issued by the SPE and credit enhancement facilities available shall be treated as tranches.