The Reserve Bank of India (RBI) has increased disclosure requirements for banks who sell securitised assets, to increase transparency for investors under the enhanced Basel II framework.The risks which needed to be addressed under securitisation include credit, market, liquidity, reputational risks, potential delinquencies and losses on underlying securitised exposures, exposures from credit lines, the central bank said.
Banks are required to clearly state what role they had played in the securitisation of an asset, including whether they were an originator, investor, provider of credit enhancement or liquidity provider while securitising assets, RBI said. The Bank further added that "In light of the wide range of risks arising from securitisation activities, which can be compounded by rapid innovation in securitisation techniques and instruments, minimum capital requirements calculated under Pillar 1 are often insufficient".
The central bank has reportedly also asked banks to quantify the aggregate amount of on-balance sheet and off-balance sheet securitisation exposures along with details on the type of exposure. According to the master circular on the prudential guidelines on capital adequacy, banks have to set aside 50 percent from Tier-I capital and 50 percent from Tier-II for a securitised exposure. The RBI also urged banks to incorporate forward looking capital planning that identified possible events or changes in market conditions that could adversely affect them, add reports.