Financial Daily from THE HINDU group of publications
Friday, Feb 03, 2006
Financial Daily from THE HINDU group of publications Friday, Feb 03, 2006 |
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Money & Banking
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Securitisation Final norms on securitisation — Arm's length ties with buyers of assets, says RBI Our Bureau
Mumbai , Feb. 2 BANKS selling assets under securitisation schemes should keep an arm's length relation with the buyers of those assets, normally a special purpose vehicle (SPV), the Reserve Bank of India has stipulated. The final guidelines on securitisation of standard assets issued by the RBI on Thursday stated that any transaction between the bank and the SPV `should be on an arm's length basis.' The bank should not have any ownership, proprietary or beneficial interests in the SPV. Under securitisation, banks or FIs sell assets to an SPV in return for immediate cash payment. The SPV then repackages and resells the assets to a third party by issuing tradable debt securities. The RBI had issued the draft guidelines in April 2005. As per the guidelines, the bank shall not have any economic interest in the assets after its sale and the SPV shall have no recourse to the bank for any expenses or losses except those permitted under the guidelines. The sale should be only on a cash basis and the considerations shall be received not later than at the time of transfer of assets to the SPV. Banks should not be under any obligation to purchase the securities issued by the SPVs, and should not subscribe to their primary issue. They may, however, purchase at a market price only senior securities issued by the SPV if these are at least of an `investment grade.' Such purchase, along with securities that may devolve on account of underwriting commitments, should not exceed 10 per cent of the original amount of the issue, the RBI guidelines said.
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