RBI stipulated the Norms for Securitisation of Loans by NBFCs

Extending the guidelines of securitisation of loan from banks to non-banking finance companies (NBFC), India’s Central Bank Reserve Bank of India on 21 August 2012 tightened the securitisation norms for NBFCs. The RBI instructed that a non-banking finance company will have to retain at least 5 per cent of the loan being sold to another entity.

The RBI in its revised guidelines also stipulated that NBFC cannot sell or securitise a loan unless three monthly installments have been paid by the borrower. The latest directives from the RBI are aimed at checking unhealthy practices and distributing risk to a wide spectrum of investors.

These guidelines have to implemented by NBFCs in two phases by the end of October 2012. Earlier, the RBI had issued similar guidelines with regards to securitisation of loans by banks.