The Reserve Bank of India (RBI) is exploring avenues to deepen the credit risk market in the country, one of the deputy governors at the central bank said.
The RBI is exploring the feasibility of allowing additional types of securitisations, M Rajeshwar Rao said at the International Research Conference on Insolvency and Bankruptcy held at IIM Ahmedabad.
In banking parlance, securitisation refers to the practice of pooling together various types of debt instruments or assets and selling them as bonds to investors.
In India, the Insolvency and Bankruptcy Code is put in place to restructure and resolve the insolvency of corporates to help lenders get maximum value for their assets. However, delays in admission of insolvency applications, an overburdened judiciary are some of the reasons why the process of resolution of stressed assets gets delayed.
To smoothen this process, various stakeholders should come together to make effective the Insolvency process, Rao said.
In this regard, lenders should not wait for a default by a borrower to initiate resolution processes, he said. They should combine prudent risk pricing of their exposures, Rao added.
The RBI will continue to engage with various stakeholders to improve the resolution frameworks and will also constantly adopt more sophisticated and updated risk management practices to take care of the systemic concerns that arise from the activities of the various credit intermediaries, Rao said.
Risk management practices of lenders have to be “sophisticated” enough to capture the changes in risk factors that may affect the safety of the said credit exposure to a bad asset, the deputy governor said.
“Lenders should also perform periodic stress tests to estimate possible trajectories that the credit exposure is likely to take and calibrate their responses accordingly. Ultimately, they are responsible for safeguarding their own interest and interest of their stakeholder,” Rao added.
Courtesy- https://www.moneycontrol.com/news/business/rbi-exploring-avenues-to-deepen-credit-risk-market-deputy-governor-m-rajeshwar-rao-8466811.html