{"id":161676,"date":"2025-04-10T19:42:20","date_gmt":"2025-04-10T14:12:20","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=161676"},"modified":"2025-04-10T19:46:21","modified_gmt":"2025-04-10T14:16:21","slug":"securitisation-of-stressed-assets","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/securitisation-of-stressed-assets","title":{"rendered":"New Mechanism for Securitisation of Stressed Assets"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Recently, the<\/span><b> Reserve Bank of India (RBI)<\/b><span style=\"font-weight: 400;\"> released a draft framework proposing the <\/span><b>market-based securitisation of stressed assets.<\/b><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Stressed Assets<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Stressed assets are loans where borrowers have defaulted or are likely to default, posing significant risks to lenders\u2019 balance sheets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Traditionally,<\/b><span style=\"font-weight: 400;\"> these assets were transferred to <\/span><b>Asset Reconstruction Company (ARC) <\/b><span style=\"font-weight: 400;\">for resolution and recovery.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>About the Securitisation of Stressed Assets<\/b><\/span><\/h2>\n<ul>\n<li><b>Aim:<\/b><span style=\"font-weight: 400;\"> To create tradable securities from stressed assets, attracting broader investor participation and supplementing the current<\/span><b> ARC route<\/b><span style=\"font-weight: 400;\"> under <\/span><b>the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Under the proposed framework<\/b><span style=\"font-weight: 400;\">, lenders<\/span><b> can sell stressed assets<\/b><span style=\"font-weight: 400;\"> to<\/span><b> Special Purpose Entities (SPEs) strictly on a cash basis<\/b><span style=\"font-weight: 400;\">, with the full sale consideration received at transfer.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A new class of facility providers, called<\/span><b> Resolution Managers (ReMs),<\/b><span style=\"font-weight: 400;\"> will administer the <\/span><b>recovery and resolution of these stressed exposures.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The framework emphasizes <\/span><b>prudentially structured, transparent securitisation<\/b><span style=\"font-weight: 400;\"> to promote financial stability and efficient resolution.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Old vs New Mechanism for Securitisation of Stressed Assets<\/b><\/span><\/h2>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.8985%;\">\n<tbody>\n<tr>\n<td style=\"text-align: center; width: 20.2405%;\"><b>Aspect<\/b><\/td>\n<td style=\"text-align: center; width: 39.382%;\"><b>Existing ARC Route<\/b><\/td>\n<td style=\"text-align: center; width: 40.2388%;\"><b>Proposed Market-Based Securitisation<\/b><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 20.2405%;\"><b>Legal Framework<\/b><\/td>\n<td style=\"width: 39.382%;\"><span style=\"font-weight: 400;\">SARFAESI Act, 2002<\/span><\/td>\n<td style=\"width: 40.2388%;\"><span style=\"font-weight: 400;\">RBI\u2019s new draft framework<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 20.2405%;\"><b>Type of Buyers<\/b><\/td>\n<td style=\"width: 39.382%;\"><span style=\"font-weight: 400;\">Primarily ARCs<\/span><\/td>\n<td style=\"width: 40.2388%;\"><span style=\"font-weight: 400;\">Broader investor base, including institutions<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 20.2405%;\"><b>Structure<\/b><\/td>\n<td style=\"width: 39.382%;\"><span style=\"font-weight: 400;\">Sale to ARCs with reconstruction focus<\/span><\/td>\n<td style=\"width: 40.2388%;\"><span style=\"font-weight: 400;\">Sale to SPEs; securities issued to investors<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 20.2405%;\"><b>Payment Mode<\/b><\/td>\n<td style=\"width: 39.382%;\"><span style=\"font-weight: 400;\">Often includes deferred payments<\/span><\/td>\n<td style=\"width: 40.2388%;\"><span style=\"font-weight: 400;\">Strictly cash-based transactions<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 20.2405%;\"><b>Asset Management<\/b><\/td>\n<td style=\"width: 39.382%;\"><span style=\"font-weight: 400;\">ARCs manage and recover assets<\/span><\/td>\n<td style=\"width: 40.2388%;\"><span style=\"font-weight: 400;\">Resolution Managers (ReMs) oversee recovery<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n<h2><span style=\"font-size: 18pt;\"><b>Significance of the RBI Framework<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Deepening the Distressed Debt Market:<\/b><span style=\"font-weight: 400;\"> The framework is set to enhance liquidity and depth in India\u2019s distressed asset market, facilitating better price discovery.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Boosting Investor Participation: <\/b><span style=\"font-weight: 400;\">By allowing a broader range of investors beyond ARCs, it promotes competition and attracts diverse capital for asset resolution.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Strengthening Financial Stability: <\/b><span style=\"font-weight: 400;\">With transparent and prudently structured transactions, the framework ensures better risk distribution and reduces systemic financial vulnerabilities.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Classification of Stressed Assets as per RBI regulations under the SARFAESI Act<\/b><\/span><\/h2>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6982%;\">\n<tbody>\n<tr>\n<td style=\"width: 19.3387%; text-align: center;\"><b>Category<\/b><\/td>\n<td style=\"width: 49.2986%; text-align: center;\"><b>Definition<\/b><\/td>\n<td style=\"width: 32.0837%; text-align: center;\"><b>Key Criteria<\/b><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Standard Assets<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Assets that do not disclose any problems and which do not carry more than normal risk.<\/span><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">Regular repayment of principal and interest; no overdue beyond 90 days.<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Sub-Standard Assets<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Assets that have remained non-performing for a period less than or equal to 12 months.<\/span><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">Overdue for more than 90 days but less than or equal to 12 months.<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Doubtful Assets<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Assets that have remained in the sub-standard category for a period of 12 months or more.<\/span><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">Remained NPA for more than 12 months.<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Loss Assets<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Assets where <\/span><b>loss has been identified by the bank or external auditors or the RBI, <\/b><span style=\"font-weight: 400;\">but the amount has not yet been written off wholly.<\/span><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">Considered uncollectible and of little value; not yet written off.<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Non-Performing Assets (NPA)<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Loans or advances where interest and\/or installment of principal <\/span><b>remains overdue<\/b><span style=\"font-weight: 400;\"> for a period of <\/span><b>more than 90 days.<\/b><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">Includes sub-standard, doubtful, and loss assets.<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 19.3387%;\"><b>Special Mention Accounts (SMA)<\/b><\/td>\n<td style=\"width: 49.2986%;\"><span style=\"font-weight: 400;\">Assets that show signs of incipient stress and risk of becoming NPAs. Categorized into SMA-0, SMA-1, and SMA-2 based on days of overdue.<\/span><\/td>\n<td style=\"width: 32.0837%;\"><span style=\"font-weight: 400;\">SMA-0: 1\u201330 days overdue<\/span><\/p>\n<p><span style=\"font-weight: 400;\">SMA-1: 31\u201360 days overdue<\/span><\/p>\n<p><span style=\"font-weight: 400;\">SMA-2: 61\u201390 days overdue<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6375%;\">\n<tbody>\n<tr>\n<td style=\"width: 111.19%; text-align: center;\" colspan=\"2\"><span style=\"font-size: 18pt;\"><b>Also Read<\/b><\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Editorials<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/daily-current-affairs\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Daily Current Affairs<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/quiz\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Current Affairs Quiz<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/mains-answer-writing\/\" target=\"_blank\" rel=\"noopener\"><b>Daily Main Answer Writing<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-previous-year-papers?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Previous+Year+Papers\" target=\"_blank\" rel=\"noopener\"><b>Check Out Previous Years Papers From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/pwonlyias.com\/stage\/upsc-test-series-courses\/\" target=\"_blank\" rel=\"noopener\"><b>UPSC Test Series<\/b><\/a><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 49.797%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC NCERT Textbooks From PW Store<\/b><\/a><\/td>\n<td style=\"width: 61.393%; text-align: center;\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-modules?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Modules\" target=\"_blank\" rel=\"noopener\"><b>Check Out UPSC Modules From PW Store<\/b><\/a><b>\u00a0<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Reserve Bank of India (RBI) released a draft framework proposing the market-based securitisation of stressed assets.<\/p>\n","protected":false},"author":11,"featured_media":161666,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"tags":[],"paper-wise":[2089],"subject":[2100],"acf":[],"_links":{"self":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/161676"}],"collection":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs"}],"about":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/types\/current-affairs"}],"author":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/comments?post=161676"}],"version-history":[{"count":2,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/161676\/revisions"}],"predecessor-version":[{"id":161684,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/161676\/revisions\/161684"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media\/161666"}],"wp:attachment":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media?parent=161676"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/tags?post=161676"},{"taxonomy":"paper-wise","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/paper-wise?post=161676"},{"taxonomy":"subject","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/subject?post=161676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}