Structured Financing

1. Securitization

Securitization involves pooling financial assets (like loans, mortgages, receivables) and issuing securities backed by these assets.

• Asset-Backed Securities (ABS): Backed by non-mortgage loans (e.g., auto loans, personal loans, credit card receivables).
• Mortgage-Backed Securities (MBS): Backed by mortgage loans.
• RBI Guidelines:
  • Governed under the RBI Securitisation Directions, 2021.
  • Minimum Holding Period (MHP) & Minimum Retention Requirement (MRR) are mandatory.
  • Originators must retain economic interest to avoid offloading full risk.

2. Collateralized Debt Obligations (CDOs)

These are complex instruments that repackage debt into tranches based on credit risk.

• Used by NBFCs and banks to raise capital.
• Subject to capital adequacy and exposure norms under Basel III.
• RBI Norms: No explicit RBI guidelines solely on CDOs, but components fall under securitization and risk management rules.

3. Structured Obligations / Credit Enhancements

Guarantees or other mechanisms offered by third parties to improve the creditworthiness of debt instruments.

• Examples:
  • Partial Guarantee by banks/NBFCs.
  • Credit Enhancement Facilities under Credit Guarantee Funds.
• RBI Norms:
  • Banks need to maintain capital against guarantees (as per Basel III).
  • CRAR impact evaluated for structured obligations.

4. Project Finance Structures

Customized debt financing structure for infrastructure and capital-intensive projects.

• Components: Term loan, mezzanine financing, bridge loan, equity.
• Often involves Special Purpose Vehicles (SPVs).
• RBI Norms:
  • Exposure Norms under RBI Master Directions on Exposure Limits.
  • Infrastructure Debt Funds (IDFs) allowed under specific RBI guidelines.

5. Lease Securitization / Receivables Financing

Securitization of lease rentals or invoice receivables (common in MSME and fintech sectors).

• RBI Framework for Trade Receivables Discounting System (TReDS).
• RBI Guidelines for NBFC-Factor and invoice financing.

6. Participatory Instruments / Risk Participation

Used in syndicated lending or trade finance.

• Risk Participation: Selling a portion of loan risk to another lender.
• RBI Guidelines:
  • Participating bank must assess exposure limits.
  • Risk transferred must reflect in credit risk mitigation calculation.

7. Co-Lending Models (CLM)

Structured partnership between Banks and NBFCs for priority sector lending (PSL).

• Lending in a pre-agreed ratio (e.g., 80:20).
• Common for housing, MSME, education loans.
• RBI CLM Guidelines (2020) govern the framework.

8. Covered Bonds (Emerging Segment)

Debt instruments backed by pool of assets, but assets remain on issuer’s balance sheet (unlike securitization).

• Gaining traction in NBFC and HFC space.
• Not directly regulated by RBI, but must comply with overall risk and capital adequacy norms.

Regulatory References:

• RBI Master Direction on Securitisation of Standard Assets (2021)
• RBI Master Circular on Exposure Norms
• RBI Circular on Co-Lending by Banks and NBFCs to Priority Sector (2020)
• Basel III Capital Adequacy Guidelines
• Framework for NBFC-Factor, TReDS, and IDFs