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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SEBI in advance stages of issuing IPO norms for non-life companies

Responding to a question on whether insurance companies would be able to hit the capital market to raise funds through IPO, SEBI chairman UK Sinha said, “It is not entirely in my hands. I get the feeling that IRDA is quite serious about it”

Chennai: Market regulator Securities and Exchange Board of India (SEBI) is in “advance stage” of finalisation for issuing norms to non-life insurance companies planning to come out with an Initial Public Offering (IPO), reports PTI.

“So far as life insurance companies are concerned, it has been sorted out. The issues and norms have been clarified between SEBI and IRDA (Insurance Regulatory and Development Authority)... so far, non-life (insurance) companies are concerned, the matter is in advance stage of discussion,” SEBI chairman UK Sinha told reporters here.

He was responding to a question on whether insurance companies would be able to hit the capital market to raise funds through IPO.

Declining to elaborate further, he said both SEBI and IRDA are quite serious about it. “It is not entirely in my hands. I get the feeling that IRDA is quite serious about it.

So my presumption is that it will not take too much time (to announce the norms for insurance companies to raise funds),” he said.

Noting that since the launch of computer-generated redressal system to investors, SEBI has received over 35,000 complaints, Mr Sinha said, “Most of the complaints registered by investors were against corporates listed in the stock exchanges”.

“More than two-thirds of the complaints have been solved within a period of less than 30 days and rest of complaints are also getting sorted out very soon. I will say more than 50% of the complaints are not against SEBI or against its intermediaries.

“Those are against corporates. More than 50% of the complaints are against corporates who are listed on the stock exchanges,” he said.

He said an investor through its website would be able to track the status of his complaint.

Explaining about the kind of complaints that were filed by investors, he said, “major complaints that were received are—(the investor) is not receiving the dividend in time or receiving an amount of dividend which is less than what an investor thinks he should have received.

“The complaints are also about not receiving the notices for AGMs or not receiving the annual reports in time”.

Voicing concern that spread of mutual fund industry in the country was not up to the expectation for the potential in market, Mr Sinha said, “the net inflow in the equity schemes of the mutual funds was down by Rs13,500 crore in 2010-11. But in 2011-12, the net inflow in equity schemes of the mutual funds was positive by around Rs600-Rs700 crore”.

He said SEBI has begun a process of consulting various agencies and with stakeholders on how to enhance the reach of mutual funds industry in the country.

“It will be a multi-pronged strategy. The exercise has just begun. We will be talking to all the stakeholders and then will take a final view”, he said.

He said the decline in the inflows in the mutual funds industry was not specific to India and similar trend was also witnessed in some advanced economies.

“Generally, including advanced economies where mutual funds penetration has been quite high, there has been a decline in the inflows to the mutual fund industry,” he said.

Mr Sinha warned of taking stringent action against those companies which do not follow the SEBI’s requirement of minimum public holding. According to Mr Sinha, so far 181 companies in the country are non-compliant of SEBI’s requirement of minimum public holding.

“So SEBI has now prescribed two more avenues for companies to try and issue their shares so that they reach and prescribe minimum public shareholding,” he said.

“If some company is not following the compliant, i.e. by June 2013 for private companies and August 2013 for PSUs, then the consequences of SEBI’s law will follow,” he said.

He also advised that an active investor should furnish his mobile phone number and email addresses so that whenever his account was opened, an SMS alert and email message be sent immediately. “This is an investor friendly measure,” he said.

Responding to a query, he said, on QFIs, so far 13 firms have taken the licenses from SEBI for being a qualified depository participant (QDP).

“If you recollect QFIs (Qualified Foreign Investors)there are entities which must have licenses for QDPs so that they can canvass businesses outside India. 13 firms have taken that license. To become a QDP, they have to be registered with SEBI.

They must have minimum assets of Rs500 crore and they have to presence outside India,” he said.

Mr Sinha was here to participate in a seminar “Investors: The Road Ahead” organised by SEBI and National Stock Exchange.

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