RBI proposes market-based securitisation of stressed assets; expect changes in how gold loans work

The Reserve Bank of India (RBI) on Wednesday announced a slew of additional measures to strengthen the financial system, expand credit access, and improve resolution mechanisms, alongside its decision to cut policy interest rates for the second consecutive time.

Among key proposals, the central bank said it will allow the securitisation of stressed assets through a market-based mechanism, offering an alternative to the existing Asset Reconstruction Company (ARC) route under the SARFAESI Act, 2002.

"A prudentially structured securitisation transaction can be an enabler for resolution of stressed assets as it is expected to improve risk distribution and provide an exit route from such exposures for lenders," the central bank said in a statement.

The RBI also proposed to expand co-lending arrangements beyond the current scope of banks and non-banking financial companies (NBFCs) for priority sector loans. The guidelines will now cover all regulated entities (REs) and will apply to all categories of loans.

The central bank announced plans to harmonise regulations governing loans against gold jewellery and ornaments across different types of regulated entities. Currently, such guidelines vary depending on the institution type, despite gold loans being extended for both consumption and income-generation purposes.

"In order to harmonise guidelines across various types of regulated entities, to the extent possible, keeping in view their differential risk-bearing capabilities, we shall issue comprehensive regulations on prudential norms and conduct related aspects for such loans," Malhotra said.

The RBI also said it would streamline norms related to non-fund-based (NFB) credit facilities, such as guarantees and letters of credit, across all regulated entities. Revised instructions on partial credit enhancement (PCE) will also be part of the new framework, with an eye on supporting infrastructure financing.

“This is expected to broaden the funding sources for infrastructure financing,” the governor added.

The draft guidelines will be released for public comments and will be finalised after incorporating stakeholder feedback.