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RBI asks banks to conduct stress test on their securitisation

The stress tests should cover various factors like rise in default rates in the underlying portfolios in a situation of economic downturn, rise in pre-payment rates due to fall in rate of interest or rise in income levels of the borrowers leading to early redemption of exposures, the RBI said

Mumbai: In order to ensure an orderly and healthy growth of securitisation market, the Reserve Bank of India (RBI) on Monday asked banks to perform stress tests at regular intervals to ensure that they are not exceeding the prudential limits, reports PTI.

“Banks should regularly perform their own stress tests appropriate to their securitisation positions,” the RBI said in the final guidelines on securitisation transactions.

Securitisation involves pooling of homogeneous assets and the subsequent sale of the cash flows from these asset pools to investors.

The stress tests should cover various factors like rise in default rates in the underlying portfolios in a situation of economic downturn, rise in pre-payment rates due to fall in rate of interest or rise in income levels of the borrowers leading to early redemption of exposures.

The guidelines further said that banks should monitor “on an ongoing basis and in a timely manner”, performance information on the exposures underlying their securitisation positions and take appropriate action, if required.

Action may include modification to exposure ceilings to certain type of asset class underlying securitisation transaction, modification to ceilings applicable to originators.

“For this purpose, banks should establish formal procedures appropriate to their banking book and trading book and commensurate with the risk profile of their exposures in securitised positions...” the guidelines said.

It further said banks can purchase loans from other banks, financial institutions and NBFCs in India only if the seller has explicitly disclosed to the purchasing banks that it will adhere to the Minimum Retention Requirement (MRR).

The overseas branches of Indian banks, it added, may purchase loans in accordance with the regulations laid down in those jurisdictions.

The RBI noted that while the securitisation framework in India has been reasonably prudent, certain imprudent practices have reportedly developed like origination of loans with the sole intention of immediate securitisation.

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RBI allows NRIs to transfer funds from NRO to NRE a/c

As per the existing regulation, fund transfer from NRE account to NRO was allowed, but not the other way round. The decision was taken based on recommendations of KJ Udeshi Committee which reviewed the facilities for persons under Foreign Exchange Management Act, 1999

Mumbai: The Reserve Bank of India (RBI) on Monday allowed non-resident Indians (NRIs) to transfer funds from non-resident ordinary (NRO) account to Non-Resident External (NRE) account subject to a ceiling of $1 million in a financial year, reports PTI.

“On a review, it has been decided that henceforth NRI... shall be eligible to transfer funds from NRO account to NRE account from within the overall ceiling of $1 million per financial year subject to payment of tax,” the RBI said in a notification.

The decision came after the KJ Udeshi Committee recommendation to facilitate persons under Foreign Exchange Management Act (FEMA), 1999, it said.

As per the existing regulation, fund transfer from NRE account to NRO was allowed, but not the other way round.

“At present transfer of funds from NRO to NRE account is not permissible,” the RBI notification said.

While, an NRE account is for depositing income from abroad, NRO account is mainly for putting Indian incomes.

In case of NRE account, only NRIs can become joint account holders but for NRO account both resident and non-resident can become joint account holders.

The decision was taken based on recommendations of KJ Udeshi Committee which reviewed the facilities for persons under Foreign Exchange Management Act, 1999.

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