How Lenders Are Reworking Securitisation Structures After RBI’s Revised Guidelines

The Reserve Bank of India’s (RBI’s) recent regulatory revisions have fundamentally altered the securitisation landscape in India. With updated Securitisation of Stressed Assets guidelines and an increasingly robust framework for market-based resolution of non-performing assets (NPAs), lenders, originators, investors and special purpose vehicles (SPVs) are re-engineering transaction structures to enhance price discovery, risk allocation and capital efficiency. These shifts are not merely technical — they reflect a strategic recalibration of how credit risk is distributed, monitored and resolved in a credit environment where NPAs have risen and regulatory scrutiny has sharpened.

This blog explores how these regulatory developments are reshaping securitisation practices in India, focusing on key areas such as the impact on originators versus SPVs, enhanced due diligence in pool selection, investor expectations for credit enhancement, and the rise of digital-first verification tools.

1. The Regulatory Shift: A New Era in Securitisation

Traditionally, Indian securitisation regulation was segmented: standard assets were securitised under the Securitisation of Standard Assets Directions, while stressed loans (NPAs) were resolved via sale to Asset Reconstruction Companies (ARCs) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This meant that lenders had limited market-based options to transfer stressed credit risk.

In early 2025, the RBI released draft Directions on Securitisation of Stressed Assets (also referred to as the Stressed Asset Securitisation Framework). This framework expands the ambit of securitisation by allowing regulated entities — including banks, non-banking financial companies (NBFCs), small finance banks and All India Financial Institutions (AIFIs) — to pool and securitise stressed loans through market mechanisms, in addition to existing ARC routes.

Key features of the new draft include:

• Homogeneous pools of stressed loans (e.g., retail, MSME segments) with strict definitions to enhance investor confidence.
• Exclusion of certain categories (e.g., farm credit, educational loans, wilful defaulters) to mitigate valuation ambiguity and moral hazard.
• Continuity of applicable norms from the standard assets regime, ensuring consistency in disclosure, servicing and investor protections.
  
  

These reforms are expected to deepen India’s securitisation market and provide lenders with more flexibility to manage stressed exposures without over-reliance on ARCs. 

2. Originators vs. SPVs: Redefining Roles and Responsibilities

Under the new framework, the line between originators and SPVs (or similar entities) is being redefined:

• Originators (lenders): Banks and NBFCs remain accountable for the quality of assets they originate and for meeting homogeneity requirements before pooling. Greater emphasis is placed on up-front credit assessment and appropriate segmentation of pools.
  
• SPVs and Resolution Managers: While SPVs continue to serve as conduits for transferring risk, the draft guidelines introduce the concept of resolution managers — specialists tasked with administering recovery strategies for stressed assets. These entities must demonstrate expertise in workout strategies, legal enforcement and reporting standards. 

This delineation increases the operational responsibilities of SPVs and enriches the ecosystem with a specialised class of intermediaries. From a legal perspective, originators must carefully document asset transfer, compliance with pooling norms and contractual terms with SPVs or resolution managers to withstand regulatory and investor scrutiny.

3. Forensic Due Diligence: The New Normal in Pool Assessment

The revised guidelines heighten expectations regarding due diligence in securitisation pools. Pool composition — particularly for stressed assets — now demands a more granular, forensic approach:

• Homogeneity and Documentation: Pools must be demonstrably homogeneous in terms of borrower type, loan size and risk profile. Even limited inclusion of non-stressed loans requires clear disclosure.
• Credit History Verification: Detailed loan-level data, payment histories and collateral status must be verified and documented to satisfy investor due diligence and regulatory requirements.
• Valuation Transparency: For stressed assets, independent valuations and clear methodologies for estimating expected recoveries are integral to structuring securitised notes that accurately reflect risk-reward profiles.

These heightened due-diligence standards serve dual purposes increasing investor confidence and protecting originators from regulatory challenges post-transaction.

4. Investor Demands: Credit Enhancement and Risk Allocation

With the entry of new investor segments including private credit funds and foreign portfolio investors (FPIs) expectations around credit enhancement have evolved. The RBI’s revised guidelines implicitly nudge market practices toward more nuanced risk allocation:

• Tranching and Subordination: Investors increasingly demand well-defined tranches with clear priority of payments and structural protection. Senior tranches may attract lower yields but benefit from stronger protection, whereas mezzanine and junior tranches offer higher returns at commensurate risk.
• First Loss Absorption: While minimum risk retention requirements (MRR) were not made mandatory across the board in the draft directions, market practice often includes retention by originators or facility providers as a signal of alignment with investor interests. 
• Liquidity and Servicing Structures: Investors are focused on dynamic servicing arrangements, particularly for stressed pools, to ensure timely information flow and active management of recoveries.
  
  

Securitisation structures that integrate credit-enhancing features such as cash reserves, guarantees or over-collateralisation are more likely to attract broader investor participation and better pricing outcomes.

5. The Rise of Tech-Enabled Verification and Asset Monitoring

As pools become more complex, lenders and investors are turning to technology to ensure robustness in asset verification and performance monitoring:

• Digital Loan-Level Tracking: Platforms that consolidate loan documentation, repayment histories and collateral records in real time improve transparency for all stakeholders.
• Automated Risk Models: Machine learning and data analytics are increasingly used to segment pools, identify patterns of stress and forecast performance, adding precision to valuation and credit assessment.
• Blockchain and Smart Contracts (Emerging Use Cases): Distributed ledger technologies offer possibilities for immutable record-keeping of asset transfers, compliance events and payment waterfalls although widespread adoption remains nascent in India.

These digital tools alleviate operational friction and enhance confidence in the underlying asset quality, particularly for stressed loans where risk profiles can shift rapidly.

6. Strategic Implications for Lenders and Law Firms

For lenders, the revised securitisation landscape presents both opportunities and challenges:

• Balance Sheet Optimisation: Market-based securitisation can help banks and NBFCs offload stressed exposures more efficiently, improving capital ratios and freeing up lending capacity. 
• Regulatory Compliance: Adherence to the detailed pool composition and documentation norms is essential to withstand supervisory review and investor due diligence.
• Contractual Precision: Legal documentation governing SPV transfers, investor representations and servicing agreements must be meticulously drafted to align with both regulatory expectations and commercial realities.

For law firms advising lenders and investors, there is a demand for deep regulatory insight, precise drafting of securitisation documentation, and robust risk mitigation strategies positioning legal counsel at the heart of these evolving markets.

Conclusion

RBI’s revised securitisation guidelines mark a significant evolution in India’s credit market architecture, especially in the context of stressed asset resolution. By enabling market-based securitisation of NPAs alongside traditional channels, enforcing rigorous due diligence standards, and catalysing investor participation through clearer risk allocation mechanisms, the regulatory framework is reshaping how lenders and SPVs transact and manage credit risk.

In this dynamic environment, lenders, investors and legal advisors must stay ahead of regulatory shifts, embrace rigorous structuring practices and adopt technological tools that enhance transparency. The result will be a more resilient securitisation market that better supports credit intermediation and economic growth in India’s financial system.