29-May-2019: Reserve Bank of India Constitutes Committee on the Development of Housing Finance Securitisation Market

As part of the Statement on Developmental and Regulatory Policies issued along with the First Bimonthly Monetary Policy for the year 2019-20 on April 4, 2019, it was announced that the Reserve Bank will constitute a Committee on Development of Housing Finance Securitisation Market.

The mortgage securitisation market in India is primarily dominated by direct assignments among a limited set of market participants on account of various structural factors impacting both the demand and the supply side, as well as certain prudential, legal, tax and accounting issues. For a vibrant securitisation market to develop, it is imperative that the market moves to a broader issuance model with suitable structuring of the instruments for diverse investor classes. At the same time, as the international experience shows, it is critical to address the issues of misaligned incentives and agency problems resulting from information asymmetry problems between the originators and investors in the market, which can exacerbate systemic risk. Thus, a careful design of a robust and transparent securitisation framework assumes paramount significance.

With a view to review the existing state of mortgage securitisation in India and various issues constraining market development, and to develop the market further, the Reserve Bank of India has constituted a Committee on the Development of Housing Finance Securitisation Market. The composition of the Committee is as under:

1

Dr. Harsh Vardhan,

Senior Advisor, Bain & Co.

Chairperson

2

Shri Chandan Sinha,

Addl. Director (Learning & Admin), CAFRAL

Member

3

Shri Sanjaya Gupta

Managing Director, PNB Housing Finance Limited

Member

4

Shri Naresh Thakkar

Managing Director & Group CEO, ICRA

Member

5

Ms. Pranjul Bhandari

Chief India Economist, HSBC

Member

6

Ms. Bindu Ananth

Chair & Trustee, Dvara Trust

Member

The Terms of Reference of the Committee are given below:

  1. To review the existing state of mortgage backed securitisation in India, including the regulations currently in place, and to make specific recommendations on suitably aligning the same with international norms;
  2. To analyse the prevalent structures for mortgage backed securitisation transactions in India, including legal, tax, valuation and accounting related issues, and suggest necessary modifications to address the requirements of both originators as well as investors;
  3. To identify the critical steps required for standardisation of mortgage backed securitisation practices such as, conforming mortgages, mortgage documentation standards, digital registry for ease of due diligence and verification by investors;
  4. To assess the role of various counterparties, including the servicers, trustees, rating agencies, etc. in the securitisation process and suggest measures required, if any to address the key risks, viz., structural, fiduciary and servicer risks;
  5. To recommend specific measures for facilitating secondary market trading in mortgage securitisation instruments, such as broadening investor base, and strengthening market infrastructure;
  6. To analyse the inter-linkages between securitisation and other related financial market segments/instruments and recommend necessary policy interventions to leverage these inter-linkages; and,
  7. To identify any other issue germane to the subject matter and make recommendations thereon.

The Committee shall submit its report by the end of August 2019.

29-May-2019: Reserve Bank of India Constitutes Task Force on the Development of Secondary Market for Corporate Loans

As part of the Statement on Developmental and Regulatory Policies issued along with the First Bimonthly Monetary Policy for the year 2019-20 on April 4, 2019, it was announced that the Reserve Bank will constitute a Task Force on development of secondary market for corporate loans.

Secondary loan market in India is largely restricted to sale to Asset Reconstruction Companies and ad hoc sale to other lenders including banks, and no formalised mechanism has been developed to deepen the market. A vibrant, deep and liquid secondary market for debt would go a long way in increasing the efficiencies of the debt market in general and would aid in resolution of stressed assets in particular. A well-developed secondary market for debt would also aid in transparent price discovery of the inherent riskiness of the debt being traded. Additionally, such price discovery would spur innovations in the securitisation market as well as invigorate dormant markets such as corporate credit default swaps (CDS). These would in turn provide with early warning signals regarding the riskiness of the debt being held by the banks which would incentivize improving the underwriting and origination standards.

Accordingly, the Reserve Bank of India has constituted a Task Force on the Development of Secondary Market for Corporate Loans. The composition of the Task Force is as under:

1

Shri T. N. Manoharan,

Chairman, Canara Bank

Chairperson

2

Shri V. G. Kannan,

Chief Executive, Indian Banks’ Association

Member

3

Shri Bahram Vakil,

Founding Partner, AZB and Partners

Member

4

Dr. Anand Srinivasan,

Additional Director (Research), CAFRAL

Member

5

Dr. Sajjid Z. Chinoy,

Chief India Economist, J P Morgan

Member

6

Shri Abizer Diwanji,

Head – Restructuring & Turnaround Services, EY India

Member

The Terms of Reference of the Task Force are to review the existing state of the market for loan sale/transfer in India as well as the international experience in loan trading and, to make recommendations on:

  1. required policy/regulatory interventions for facilitating development of secondary market in corporate loans, including loan transaction platform for stressed assets;
  2. creation of a loan contract registry to remove information asymmetries between buyers and sellers, its ownership structure and related protocols such as standardization of loan information, independent validation and data access;
  3. design of the market structure for loan sales/auctions, including online platforms and the related trading and transaction reporting infrastructure;
  4. need for, and role of, third party intermediaries, such as servicers, arrangers, market makers, etc.;
  5. appropriate measures for enhanced participation of buyers and sellers in loan sale/transfer; and,
  6. any other matter incidental to the issue.

The Task Force shall submit its report by the end of August 2019.

28-Feb-2019: RBI constitutes task force under Usha Thorat on offshore rupee markets

The RBI announced a task force headed by its former deputy governor Usha Thorat to examine issues related to offshore rupee markets and recommend policy measures to ensure stability of the external value of the domestic currency.

The eight-member task force will assess the causes behind the development of the offshore rupee market and study the effects of the offshore markets on the rupee exchange rate and market liquidity in the domestic market.

The Reserve Bank of India (RBI) will also recommend measures to address concerns, if any, arising out of offshore rupee trading besides proposing measures to generate incentives for non-residents to access the domestic market.

Another point of reference for the task force is to examine the role international financial services centres can play in addressing the concerns.

The panel would be submitting its report by the end of June 2019. The panel is guided by the objective of developing deep and liquid on-shore financial markets that act as a price setter of the Rupee globally.

The focus of policy efforts has been to align incentives for non-residents to gradually move to the domestic market while at the same time improving market liquidity to promote hedging activity on-shore while announcing setting up of the task force.