In September 2021, RBI released two Master Directions that substantially rewrote the rules for Indian securitisation: the Master Direction on Securitisation of Standard Assets and the Master Direction on Transfer of Loan Exposures. The new framework was the most significant regulatory change to India's structured credit market in a decade — replacing the 2006 and 2012 guidelines that had governed the market since its formative period.
Three years on, most practitioners who transact in this market are familiar with the headline changes. Many are less familiar with the provisions that are routinely misapplied, the gaps in market practice that the new framework exposed, and the areas where subsequent RBI clarifications have added complexity rather than resolved it.
This note covers what actually changed, where transactions are still going wrong, and what the framework implies for structuring decisions in 2026.
What the 2021 framework replaced — and what it kept
The pre-2021 framework had been supplemented by circular after circular since 2006, creating a body of rules that was internally inconsistent in places and left significant grey areas in others. The 2021 consolidation was intended to address this.
What survived unchanged in substance:
- The fundamental true-sale requirement — securitisation must result in genuine risk transfer and cannot be a disguised secured lending arrangement
- The requirement for an independent trustee for PTC structures
- The general prohibition on originator credit enhancement beyond defined limits
- The priority-sector classification rules for Direct Assignment transactions
What changed materially:
The Minimum Holding Period (MHP) requirements were restructured and in several cases extended. Before 2021, MHP rules had sector-specific exceptions that were widely used. The 2021 framework tightened these.
The Minimum Risk Retention (MRR) framework was significantly revised. The pre-2021 approach allowed different retention structures (vertical slice, horizontal retention) with varying percentages. The 2021 framework standardised retention at a vertical 5% for most categories and expanded the list of transactions for which 10% vertical retention is required.
The definition of 'standard assets' eligible for securitisation was tightened. Certain restructured exposures that were previously eligible are now explicitly excluded.
The framework introduced explicit provisions for Simple, Transparent, and Comparable (STC) securitisations — a category modelled on the EU STS framework — with more favourable capital treatment for investors in qualifying transactions.
The Transfer of Loan Exposures (TLE) direction, issued alongside the Securitisation direction, for the first time provided a unified framework for Direct Assignments and loan participations, replacing the fragmented prior guidance.
The MHP provisions: where transactions still stall
The Minimum Holding Period requirement — that underlying loans must be held on the originator's balance sheet for a defined period before being eligible for securitisation — is one of the provisions most frequently mis-applied in practice.
The core rule: For retail loans (term), the MHP is generally 6 months for loans with an original maturity greater than 2 years, and 3 months for shorter tenors. For working capital and other revolving exposures, MHP is measured differently.
The practical problem: The MHP clock starts from the date of origination of the underlying loan — not the date the originator decides to securitise. This seems obvious, but transactions regularly arrive at documentation with pools that include loans originated within the MHP window, requiring pool re-composition at the structuring stage rather than the origination stage.
The second MHP problem arises for top-up or re-finance structures, where an existing borrower's loan is modified, restructured, or re-financed before the original MHP has run. The question of whether the MHP restarts from the modification date is not fully resolved in the directions, and different banks and rating agencies apply different interpretations. Transactions built on the wrong interpretation face capital reclassification post-issuance.
The STC exception: STC-eligible transactions have a more generous MHP in some categories. But STC eligibility requires meeting a checklist of criteria around homogeneity, data disclosure, and structural simplicity that many originator programmes — particularly those with heterogeneous pools or complex credit enhancement structures — do not satisfy.
MRR mechanics: how to hold retention correctly
The 2021 framework requires the originator to retain a minimum economic interest (MRR) in the securitised pool — the 'skin in the game' requirement. The purpose is to align origination incentives.
The 5% vertical slice rule: For most transactions, the originator retains 5% of each tranche — 5% of the senior, 5% of the subordinated. The 'vertical slice' structure means the retained position is proportionally equivalent to a 5% participation in the full pool.
The 10% horizontal requirement: For certain categories — securitisations of personal loans, credit card receivables, and other categories specified by RBI — the retention is 10% rather than 5%.
Capital treatment of the retained position: This is where transaction economics often go wrong. The retained MRR position is not simply held off to the side — it attracts capital treatment in the originator's books. Under Basel III's securitisation framework, the originator's retained slice receives risk-weighting that depends on where in the waterfall the retention sits. A retained subordinated first-loss piece typically receives a higher risk weight than a retained senior piece. Getting this wrong produces an overstatement of the capital relief from securitisation.
The re-securitisation prohibition: The 2021 framework explicitly prohibits re-securitisation — securitising pools that contain other securitisation positions. This was always implicit but is now codified. It matters because some structured note programmes were attempting to achieve synthetic diversification by including positions in other securitisation tranches as pool assets.
Direct Assignments under the TLE direction
The Transfer of Loan Exposures direction governs Direct Assignments — the bilateral transfer of a loan pool from originator to assignee without a trust vehicle. Key provisions:
MHP applies equally to DAs. The same MHP rules that apply to PTCs apply to DA pools. This is frequently underestimated by originators using DAs as a faster alternative to PTC issuance, on the assumption that the lighter structure means lighter compliance requirements. It does not.
MRR for DAs: The 2021 framework established a 10% MRR for DAs (higher than the 5% floor for PTCs in standard categories). The 10% must be retained as a first-loss participation — the originator cannot structure the DA in a way that passes the first-loss exposure entirely to the assignee.
Priority-sector treatment: DA transactions between banks and NBFCs continue to qualify for priority-sector classification at the acquirer bank, subject to meeting pool eligibility criteria. This is the principal economic driver of DA volume in India — banks acquiring DA pools from NBFCs to meet PSL targets. The 2021 framework tightened the pool eligibility criteria for PSL DA transactions, reducing the ability to include near-vintage loans and requiring fuller data disclosure.
What the framework still does not resolve
Three areas remain genuinely ambiguous in the 2021 directions.
Synthetic securitisation and SRT treatment. The framework covers traditional cash securitisation. Synthetic risk transfer structures — where the bank references a pool and obtains credit protection through a CDS or guarantee without actually transferring the loans — are addressed only obliquely. RBI's capital framework references Basel III synthetic securitisation provisions, but the specific conditions for capital recognition are not set out in a dedicated Indian instrument. Transactions in this area require careful interpretation of the Basel III framework as applied in India.
Cross-border transactions. The Securitisation direction applies to Indian-regulated entities. Where an NBFC securitises a pool to an offshore SPV — a structure used to access foreign capital — the applicable regulatory framework involves both the Securitisation direction and FEMA. The interaction between the two is not addressed comprehensively in either instrument, and market practice varies.
Revolving pool mechanics. The direction provides limited guidance on revolving pool structures — where short-tenor assets (trade receivables, credit card receivables) continuously replace paid-off assets in the pool. The eligibility criteria, clean-up call provisions, and early amortisation triggers for revolving structures are addressed in general terms but without the specificity that originators executing these structures need for compliance certainty.
The practical implication for current transactions
The 2021 framework is now mature enough that its provisions should not be a source of surprise in well-structured transactions. In practice, they still are — for three reasons.
First, originators whose securitisation programmes were designed around pre-2021 rules continue to execute transactions that partially reflect old practice. Pool composition criteria, retention structures, and documentation terms are sometimes inherited from pre-2021 templates rather than rebuilt from the current direction.
Second, the 2021 framework's capital treatment implications are not always fully reflected in the originator's securitisation economics. A transaction structured to maximise balance-sheet relief may achieve apparent relief while generating a retained position that, correctly risk-weighted under Basel III, partially offsets the benefit.
Third, the STC eligibility conditions — where they apply — are not always assessed at the pool design stage. Discovering mid-transaction that a pool fails STC eligibility means accepting the less favourable capital treatment for investors, which typically means renegotiating the deal economics.
The clean solution in each case is the same: build the regulatory analysis into the structuring process from the start, not after the commercial terms are agreed.
For regulatory mapping, pool eligibility analysis, or investor-side capital treatment review under the 2021 RBI framework, get in touch.
