The Securities and Exchange Board of India (SEBI) has unveiled a series of proposed regulatory updates for securitised debt instruments (SDIs), aiming to enhance transparency and safeguard investor interests. The draft proposal suggests a minimum investment threshold of Rs 1 crore for SDI investments by RBI-regulated originators and unregulated entities involved in securitisation activities.
A notable feature of the proposal is a cap on investor numbers in private placements. SDIs offered privately would be restricted to 200 investors; exceeding this would classify the issuance as a public offer, necessitating broader compliance. Additionally, SEBI suggests that public offers be open for a period of three to ten days, with advertising standards aligning with existing rules for non-convertible securities.
All SDIs would be required to be issued and transferred in dematerialised (demat) form. This shift is in line with SEBI’s updated regulatory framework, which has been evolving since its 2008 guidelines and incorporates the Reserve Bank of India’s 2021 guidelines for securitising standard assets.
SEBI also proposes rigorous risk management measures, mandating originators to retain a minimum 10% of the securitised asset pool or 5% for short-term receivables maturing within 24 months. To further ensure originators maintain a stake in the underlying assets, SEBI will specify a minimum holding period for the receivables.
In a bid to allow originators greater flexibility in managing asset longevity, SEBI has introduced an optional “clean-up call,” permitting originators to repurchase up to 10% of the initial asset value. This option aims to offer originators a method to handle aging assets without imposing new obligations.
For liquidity management, the proposal recommends that timing mismatches in cash flows should be addressed by liquidity facilities, either directly provided by the originator or through an assigned third-party agent. SEBI’s updated framework also refines the definition of permissible underlying assets for SDIs, narrowing it to listed debt securities, trade receivables, rental incomes, and equipment leases, while eliminating single-asset securitisation.
The regulator has also set track record requirements, mandating originators to have at least three years of operating experience, while obligors (borrowers) must demonstrate at least two successful cycles of default-free payments.
With these changes, SEBI aims to bolster India’s securitisation market by establishing a structured, risk-managed framework for SDI investments. Public comments on the proposals are invited until November 16, marking a critical consultation phase for stakeholders in this growing financial sector.
