The Reserve Bank of India (Non-Banking Financial Companies - Securitisation Transactions) Directions, 2025, DOR.STR.REC.272/21.04.177/2025-26, dated November 28, 2025 and updated as on July 1, 2026 (the NBFC Securitisation Directions), set retention at 5 or 10 per cent of book value, cap an originator’s exposure at 20 per cent of a scheme’s securitisation exposures, and set a minimum ticket of ₹1 crore for covered NBFCs and HFCs.
Every figure outside the made-up example comes from the NBFC Securitisation Directions. Paragraph numbers are given so you can check them against the text.
Which NBFCs do the securitisation directions cover?
The NBFC Securitisation Directions, 2025 apply to the entities below across all layers, unless the text specifies otherwise (para 3).
| Covered | Not covered |
|---|---|
| NBFC-D | Mortgage Guarantee Companies |
| NBFC-ICC | NBFC-P2P |
| NBFC-Factor | NBFC-AA |
| NBFC-MFI | Core Investment Companies |
| NBFC-IFC | Standalone Primary Dealers registered as NBFCs |
| IDF-NBFC | NOFHCs registered as NBFCs |
| HFCs | Type I NBFCs; Base layer NBFCs with customer interface that do not avail public funds |
This piece covers these NBFCs and HFCs only. Small Finance Banks have a separate direction, which the text cites by name. Check the direction for your own lender type.
What are the core limits in the NBFC securitisation directions?
The core limits in the NBFC Securitisation Directions, 2025 are set out below for covered NBFCs and HFCs. A special purpose entity (SPE) is the company, trust or other entity organised to hold the pool and issue the notes.
| Item | Norm | Para |
|---|---|---|
| Retention, loans with original maturity of 24 months or less | 5 per cent of book value | 10(1) |
| Retention, loans with original maturity above 24 months | 10 per cent of book value | 10(2) |
| Retention, bullet loans allowed by the proviso to para 5 | 10 per cent of book value | 10(2) |
| Retention, residential mortgage backed securities (RMBS) | 5 per cent of book value, whatever the maturity | 11 |
| Total originator exposure to one scheme | Up to 20 per cent of the securitisation exposures it creates | 23 |
| Minimum ticket | ₹1 crore per single investor | 26 |
| Listing | Recommended, not mandatory; an offer to fifty or more persons in an issuance is listed under the SEBI 2008 regulations | 27 |
| Originator on the SPE board | At most one representative, no veto; board of at least four with an independent majority | 28(4) |
| Originator share capital in the SPE | Not allowed | 28(3) |
| Credit enhancement conditions not met | Provider holds capital equal to the full value of the securitised assets | 83 |
The 20 per cent limit excludes credit-enhancing interest-only strips, which are subordinated assets representing future margin income, and swaps with the SPE. Exceeding the limit only because the notes amortised is not a breach (paras 23 to 25).
Where do capital requirements and the Minimum Holding Period sit?
Capital requirements for securitisation exposures sit in the Reserve Bank of India (Non-Banking Financial Companies - Prudential Norms on Capital Adequacy) Directions, 2025. Para 108 of the NBFC Securitisation Directions, 2025 requires capital against all securitisation exposure amounts and points to that text. Para 72 of the NBFC Securitisation Directions separately sets risk weight thresholds for simple, transparent and comparable (STC) pools.
The Minimum Holding Period (MHP) is set in the Reserve Bank of India (Non-Banking Financial Companies - Transfer and Distribution of Credit Risk) Directions, 2025, so take the periods from that text. Under the NBFC Securitisation Directions, MHP applies loan by loan. For commercial or residential real estate mortgages, MHP runs from full disbursement or CERSAI registration of the security interest, whichever is later (paras 7 and 8).
What cannot be securitised by an NBFC?
An NBFC can neither undertake nor assume exposure to the structures and underlying assets below under para 5 of the NBFC Securitisation Directions, 2025.
| Barred structure | Barred underlying asset |
|---|---|
| Re-securitisation | Revolving facilities, such as credit card receivables and cash credit |
| Short-term paper, such as rolled-over commercial paper, issued against long-term assets | Restructured loans in the specified period |
| Synthetic securitisation | Exposures to other lending institutions |
| Refinance exposures of All India Financial Institutions | |
| Loans with bullet payment of both principal and interest | |
| Loans with residual maturity under 365 days |
Two carve-outs apply:
- Agricultural loans to individuals with tenor up to 24 months, with interest and principal due only at maturity.
- Trade receivables with tenor up to 12 months, discounted or purchased by the NBFC from its borrowers.
Both carve-outs need a repayment record. The borrower or drawee must have fully repaid the last two loans or receivables within 90 days of the due date. For agricultural loans with maturity beyond one year, the test is the last one loan. Investors must be able to verify this. MHP does not apply to these assets (paras 5 and 8).
Other on-balance sheet loans and advances classified as standard are eligible, subject to the bars above (para 6).
How must an NBFC hold the Minimum Retention Requirement?
The Minimum Retention Requirement (MRR) is the stake an originator must keep in the pool under the NBFC Securitisation Directions, 2025. The first 5 per cent of book value follows a fixed order, and anything above 5 per cent can be held in any combination (para 12).
| Portion of MRR | How MRR is held |
|---|---|
| Within the first 5 per cent, step one | First loss facility, if available |
| Within the first 5 per cent, step two | Any shortfall through the equity tranche |
| Within the first 5 per cent, step three | Any remaining shortfall pari passu in the tranches sold to investors |
| Above 5 per cent | First loss facility, equity tranche or any tranche sold to investors, in any combination |
Five further MRR rules apply (paras 12 to 14):
- Overcollateralisation does not count as first loss facility here.
- An interest-only strip on excess spread does not count towards MRR, subordinated or not.
- MRR cannot be reduced by hedging credit risk, or by selling or encumbering the retained interest.
- The originating NBFC holds MRR itself, not a group entity, and the form of MRR cannot change over the life of the deal.
- MRR as a percentage of unamortised principal is maintained on an ongoing basis, except for reduction through repayment or loss absorption. Deals with a replenishment period also meet MRR at the end of that period.
When can credit enhancement be reset in an NBFC securitisation?
Credit enhancement (CE) resets under the NBFC Securitisation Directions, 2025 apply only to external CE in first or second loss position, such as cash collateral or guarantees. An equity tranche cannot be reset (paras 82 and 84).
| Test | RMBS | All other securitisations | Para |
|---|---|---|---|
| Amortisation before first reset | At least 25 per cent of initial principal | At least 50 per cent of initial principal | 85, 86 |
| Later resets | Every further 10 per cent of the original level | Steps of 10 per cent: 60, 70 and 80 per cent | 85, 86 |
| Gap between resets | At least six months | At least six months | 85, 86 |
| Reserve floor, as share of initial CE | At least 20 per cent | At least 30 per cent | 87(2) |
| Maximum release | 60 per cent of CE above what the ratings need | 60 per cent of CE above what the ratings need | 87(3) |
A CE reset also needs the following (paras 84 and 87):
- All outstanding tranches other than equity are re-rated, by the original rating agency, with no deterioration in rating.
- Investor consent, either explicit at each reset or through general clauses in the documents.
- Portfolio-level delinquency triggers in the contract, where the deal provides for resets. Without an original contractual clause, a reset needs the consent of all investors in outstanding notes.
- Retained exposures plus CE offered by the originator stay at or above MRR.
What are the timelines in the NBFC securitisation directions?
The NBFC Securitisation Directions, 2025 set the time limits below for covered NBFCs and HFCs.
| Event | Limit | Para |
|---|---|---|
| Sale consideration | Received no later than transfer; cash basis only | 31 |
| Transfer of assets to issue of notes | Gap of no more than 30 days | 31 |
| Replacement of assets under a representation or warranty | Within 120 days of transfer, on the original sale terms | 30(5) |
| Material change to the risk profile of the notes | Disclosed within 14 calendar days | 22 |
| Liquidity facility drawings outstanding | Over 90 days: NPA and fully provided | 91 |
| Notes devolved on an originator-underwriter | Sold to unrelated third parties within three months to stay outside the 20 per cent limit; capital held as if on book until then | 94 |
| MRR and MHP disclosure | At origination, then at least half-yearly (September and March), and on any breach | 112 |
| Transaction reporting to RBI | Quarterly, by the originator | 115 |
What are the STC thresholds for NBFC securitisation?
Simple, transparent and comparable (STC) securitisations can get alternative capital treatment under the NBFC Securitisation Directions, 2025 only if they meet all the Chapter III criteria (para 35). The numeric criteria are below.
| Criterion | Norm | Para |
|---|---|---|
| Originator performance history | At least five years for retail, seven for non-retail | 40 |
| Payment status check on the pool | No earlier than 45 days before the effective date | 44 |
| Pool data to investors | At least quarterly over the life of the deal | 52 |
| Single obligor concentration | Up to 1 per cent of the pool at cut-off | 73 |
| Single obligor, with retained first-loss cover | Up to 2 per cent, if the originator’s subordinated tranches cover at least the first 10 per cent of losses; those tranches do not get STC treatment | 73 |
Underlying exposures must also qualify under the Standardised Approach for credit risk for the risk weights below at the portfolio cut-off date, after any eligible credit risk mitigation (para 72).
| Exposure | Test basis | Maximum risk weight (%) | Para |
|---|---|---|---|
| Loans secured by residential mortgages, or fully guaranteed residential loans | Value-weighted average across the portfolio | 40 | 72(1) |
| Loan secured by a commercial mortgage | Individual exposure | 50 | 72(2) |
| Retail exposure | Individual exposure | 75 | 72(3) |
| Any other exposure | Individual exposure | 100 | 72(4) |
RBI can deny the preferential capital treatment or require additional capital under Pillar 2 if a deal fails the criteria (para 79).
How should a credit manager read the securitisation directions at sanction?
The NBFC Securitisation Directions, 2025 bind the NBFC or HFC doing the deal. When you assess one as a borrower or counterparty, these points bear directly on the file.
- On-lending books. Exposures to other lending institutions are barred as underlying assets (para 5). An NBFC cannot plan to exit its loans to other lenders through securitisation under these Directions.
- Security cover. The retained interest cannot be encumbered (para 14). Confirm that MRR positions are not part of the assets offered as security.
- Underwriting parity. Standards for securitised loans cannot be less stringent than for loans kept on the book, and the timing and purpose of changes must be disclosed to holders of securitisation exposures (para 16). Compare pool quality against the retained book.
- Disclosure trail. Ask for the half-yearly MRR and MHP confirmations for each live deal.
Exposure limits for securitised paper and originators vary by institution.
If the NBFC is an investor, the NBFC can buy notes only if the originator has explicitly disclosed adherence to MRR and MHP, and compliance with the KYC Directions (paras 97 and 98). The investing NBFC must also run its own stress tests and hold a Board-approved valuation policy (paras 103 and 104).
Worked example, made-up numbers
This made-up example applies the MRR, 20 per cent and CE reset tests of the NBFC Securitisation Directions, 2025. The numbers show the arithmetic only and are not a market benchmark.
An NBFC securitises a ₹200 crore pool of loans with original maturity of 36 months. The SPE issues ₹194 crore of senior notes and ₹6 crore of equity tranche, and the NBFC posts ₹8 crore of cash collateral as first loss cover. The NBFC retains all of the equity and ₹6 crore of the senior notes.
| Step | Working | Result |
|---|---|---|
| MRR at close | 10 per cent of ₹200 crore | ₹20 crore |
| First ₹10 crore | ₹8 crore first loss, then ₹2 crore equity | Follows the order |
| Next ₹10 crore | ₹4 crore equity, ₹6 crore senior | Any combination |
| 20 per cent test | ₹20 crore of ₹208 crore (notes plus cash collateral) | 9.6 per cent, within limit |
The pool then amortises to ₹100 crore, which meets the 50 per cent test. There are no losses and repayment is sequential, so senior notes stand at ₹94 crore. Assume no rating has deteriorated, investors have consented, and the rating agency says ₹3 crore of CE holds the ratings.
| Reset test | Working | Result |
|---|---|---|
| Excess CE | ₹8 crore less ₹3 crore | ₹5 crore |
| Maximum release | 60 per cent of ₹5 crore | ₹3 crore |
| CE after release | ₹8 crore less ₹3 crore | ₹5 crore |
| Reserve floor | 30 per cent of ₹8 crore | ₹2.4 crore, cleared |
| Originator’s senior share | ₹6 crore of ₹194 crore, applied to ₹94 crore | ₹2.9 crore |
| Retained after release | ₹5 crore CE, ₹6 crore equity, ₹2.9 crore senior | ₹13.9 crore |
| MRR check | 10 per cent of ₹100 crore | ₹10 crore, cleared |
What is easy to misread in the NBFC securitisation directions?
Five points in the NBFC Securitisation Directions, 2025 need a careful read.
- Original versus residual maturity. MRR turns on original maturity (para 10). The 365-day eligibility bar turns on residual maturity (para 5). Test both.
- Mixed pools. Para 10 sets MRR by the maturity of the underlying loans but gives no method for pools that mix the two bands. Settle the approach with compliance before structuring.
- Counting excess spread. An interest-only strip can be credit enhancement and still not count towards MRR (paras 4(9) and 13).
- Treating 20 per cent as a retention target. MRR is a floor and the 20 per cent limit is a ceiling. They are separate tests with different exclusions.
- Purchased loans. An originator need not be the lender that sanctioned the loan. The originator must apply underwriting requirements to its due diligence on the selling lender’s process, and the SPE conditions in para 28 also apply to that lender (paras 4(12), 17 and 29).
Sources
- Reserve Bank of India (Non-Banking Financial Companies – Securitisation Transactions) Directions, 2025, rbi.org.in, accessed 2026-11-06