Sebi moves to simplify securitised debt rules, proposes big relaxations for RBI-regulated entities

Markets regulator Sebi has proposed a set of changes to strengthen and simplify the securitised debt instruments (SDI) framework, including permitting single-asset securitisation by RBI-regulated entities and easing several structural restrictions to support market development.

The proposals were outlined in a consultation paper released on Monday, with Sebi stating that the objective is to align its regulations more closely with Reserve Bank of India (RBI) norms and deepen the listed securitisation market.

Single-asset securitisation to be allowed for RBI-regulated entities

A key proposal allows RBI-regulated entities to undertake single-asset securitisation by exempting them from the existing rule that caps exposure to a single obligor at 25 per cent of the asset pool.

Sebi noted that while the cap was originally designed to reduce concentration risk, it has restricted listing of such structures, even though RBI regulations already permit them.

Winding-up norm to be replaced with trustee replacement

The regulator has also proposed removing the requirement to wind up securitisation schemes in case of suspension or cancellation of a trustee’s registration.

Instead, Sebi has suggested that a new trustee be appointed, stating that winding up is inconsistent with RBI’s securitisation framework, which does not permit such unwinding once transactions are structured.

Relaxation on related-party securitisation deals

Sebi has further proposed removing restrictions on securitisation transactions between an originator and a special purpose distinct entity (SPDE) belonging to the same group, provided the originator is regulated by the RBI.

Disclosure responsibility shifted to servicers

In another key change, Sebi has proposed transferring the responsibility for periodic disclosures on asset pool performance from the originator to the servicer.

The regulator said this would ensure better transparency and timely reporting, as servicers are directly responsible for collecting and monitoring receivables.

Changes in SPDE trustee board composition

Sebi has also suggested revisions to the composition of boards of trustees of SPDEs. For RBI-regulated originators, representation would be limited to one member without veto rights.

This is intended to align governance standards with RBI norms and ensure arm’s length structuring.

Public comments invited till May 25

Sebi has invited public comments on all proposals until May 25, indicating that the changes are currently in the consultation stage and open for industry feedback before final implementation.