In a move aimed at enhancing transparency and investor protection, markets regulator Sebi has rolled out new regulations for securitised debt instruments (SDIs), setting a minimum investment requirement and refining risk retention norms.
New Investment Threshold and Eligibility Rules
According to a recent gazette notification, Sebi has mandated a minimum investment ticket size of ₹1 crore for SDIs issued by RBI-regulated originators and unregulated entities. This threshold also applies to secondary market transfers involving unregulated originators. The move is expected to raise the bar for investor participation, ensuring a more stable and professional investor base.
SDIs are financial products created by bundling loans, mortgages, or receivables and selling them to investors. These instruments offer liquidity to originators while distributing risk across a pool of assets. Sebi’s new norms stipulate that SDIs must now be issued and transferred only in demat form, aligning the product with broader digitization and market transparency goals.
In the case of SDIs backed by listed securities, the minimum investment size will match the highest face value among those securities.
Risk Retention and Originator Guidelines
To align market practices with global standards, Sebi has set a risk retention requirement: originators must hold at least 10% of the securitised pool. However, for pools consisting of receivables with maturities up to 24 months, the threshold drops to 5%. This ensures that originators remain financially invested in the asset pool’s performance, improving overall risk management.
Additionally, originators must demonstrate a minimum of three years of operating experience. This requirement aims to curb fly-by-night operators and foster credibility in the securitisation market.
The new framework also mandates a minimum holding period of three months for loans with a tenor of up to two years and six months for those extending beyond two years. These provisions seek to establish a clear track record before assets are securitised and sold.
Listing Norms and Clean-Up Call Option
Public offers of SDIs must now remain open for a minimum of three days and no longer than 10 days. Promotional activities must follow advertising standards applicable to non-convertible securities under Sebi regulations. This change is expected to bring uniformity and reduce information asymmetry.
One notable feature in the updated regulations is the introduction of an optional “clean-up call,” which allows originators to repurchase up to 10% of the original asset value. This mechanism is designed to offer flexibility in managing residual asset pools without additional obligations.
In a significant move to curb risky practices, Sebi has explicitly prohibited re-securitisation and synthetic securitisation. The underlying assets must now be restricted to listed debt securities, approved trade receivables, rental income, and equipment leases—enhancing asset quality and investor confidence.
To give effect to these reforms, Sebi has amended its regulations governing the issue and listing of debt instruments and security receipts. Market participants expect these changes to shape future market trends and influence the investment strategies around Nifty-linked securities and structured debt products.
While the new norms may initially narrow the pool of eligible participants, they are set to build a more robust, transparent securitisation ecosystem in the long run—potentially fueling a bank rally and reshaping investor sentiment in auto stocks and other asset-backed segments.