Absence of vibrant market for stressed assets an impediment for successful resolution plan: RBI governor
The absence of a vibrant market for stressed assets in the country is one of the major impediments for implementing a successful resolution plan, says Shaktikanta Das, the governor of the Reserve Bank of India (RBI).
“This effectively limits the pool of prospective resolution applicants for stressed assets under IBC. In fact, this applies to even our regulated entities when they transfer their stressed assets outside the IBC process. A robust secondary market in loans can be an important mechanism for management of credit exposures by the lending institutions,” says Das who was giving his keynote address in an event in Mumbai on 11 January 2024.
The RBI governor listed out a few measures the regulator took in order to develop a secondary market for stressed assets.
He highlighted that the RBI came out with the Master Directions on Transfer of Loan Exposures in September 2021. The Master Direction lay down a comprehensive regulatory framework for transfer of loan exposures by banks, NBFCs and All India Financial Institutions (AIFIs). An enabling framework has been put in place for transfer of stressed loan exposures to a wider set of market participants, subject to specified conditions.
“We are also currently in the process of formulating a framework for securitization of stressed assets, for which a Discussion Paper has been issued in January, 2023,” said the governor.
From an institutional perspective, he said, the RBI has brought together a core group of major banks to set up a Self-Regulatory Body – Secondary Loan Market Association (SLMA). The self-regulatory body is expected to play an important role in standardisation of documentation and market practices; setting up the market infrastructure; promoting liquidity, efficiency and growth of the secondary market in alignment with broad regulatory objectives.
Das says that these measures are expected to facilitate the transfer of credit risk originating in the banking sector and ensure market-based credit products for diversified set of investors.
“Undoubtedly, the germination of an active secondary market ecosystem will have consequential benefits for the IBC mechanism,” he added.
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