Securitisation of standard assets and receivables financings in India

Anoj Menon

As governments across parts of the world (including Europe and the United Kingdom) seek to tame inflation by raising interest rates and further with supply chain disruptions due to macro-economic factors, corporates have been looking to asset based / receivables financing and securitisation for working capital solutions. This article looks at: (i) the history and development of securitisation / asset based / receivables financing in India, (ii) the specific regulatory regime for securitisation in India, (iii) legal concerns where a seller of receivables may be based in India, and (iv) the risks associated with the insolvency of the SPV and the originator including in its capacity as servicer/collection agent.

History and development of the Indian market Until 2006, India did not have any specific regulations governing securitisation of standard, performing assets. In 2006, the Reserve Bank of India (RBI) released guidelines on securitisation of standard assets by banks, all India term-lending and refinancing institutions and non-banking financial institutions (NBFCs) (the 2006 Guidelines). As per the 2006 Guidelines, securitisation was defined as a process by which certain assets were sold to a special purpose vehicle (SPV) for immediate cash flow. The cash flow could then be used to service the securities issued by the SPV. However, direct assignment of assets was not dealt with under the 2006 Guidelines. Even after the introduction of the 2006 Guidelines, securitisation transactions were