In a bid to encourage Non-Banking Finance Companies (NBFCs) to securitise/assign their eligible assets, the Reserve Bank of India has cut the minimum holding period (MHP) requirement for NBFCs raising funds via securitization of loans of original maturity above 5 years.
In respect of loans of original maturity above 5 years, the RBI has reduced minimum number of installments to be paid before securitization to six monthly installments (12 earlier) or two quarterly installments (four) subject to requirements that Minimum Retention Requirement (MRR) for this will be 20% of the book value of loans being securitized /20% of the cash flows from the assets assigned.
In a notification RBI said “It has been decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly installments or two quarterly installments (as applicable), subject to the prudential requirement.”
The requirement, according to RBI guidelines says that the MRR for such securitization /assignment transactions shall be 20% of the book value of the loans being securitized/ 20% of the cash flows from the assets assigned.
The MRR so far was 10 per cent of the book value of the loans being securitized.
Originating NBFCs can securitize loans only after these have been held by them for a minimum period in their books.
The MRR is primarily designed to ensure that the originating NBFCs have a continuing stake in the performance of securitized assets.