SEBI aligns securitisation norms with RBI framework, eases municipal bond rules

New Delhi: Markets regulator SEBI on Friday approved amendments to the framework governing securitised debt instruments (SDIs) and municipal debt securities.

Both the amendments were aimed at aligning securitisation regulations with the Reserve Bank of India’s framework, improving operational efficiency and supporting the development of the country's listed securitisation and municipal bond markets.

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Under the revised framework, RBI-regulated entities, such as banks and NBFCs, undertaking securitisation will be exempt from the existing 25 percent obligor concentration limit for single-asset securitisation transactions.

However, issuers will be required to prominently disclose concentration risks arising from such transactions in offer documents so that investors are aware of associated risks.

SEBI also proposed changes in disclosure and reporting obligations related to securitised assets. Responsibility for periodic disclosures, including monthly reports and performance data, will be shifted to the servicer instead of being solely placed on the originator, as the servicer is responsible for data collection and reporting.

The regulator further aligned governance requirements for Special Purpose Distinct Entities (SPDEs) involving RBI-regulated originators. For such entities, representation of the originator on the SPDE board will be restricted to a maximum of one representative, in line with RBI’s securitisation framework.

SEBI also clarified that an SPDE cannot acquire debt or receivables from an originator if the originator is part of the same group as the trustee or under the same control as the trustee, removing ambiguity in interpretation of existing provisions.

The amendments will also empower SEBI to appoint a new trustee if the registration of an existing trustee is suspended or cancelled.

Separately, SEBI approved amendments to the municipal debt securities regulations to develop the municipal bond market in India. The revised framework will allow municipalities to raise funds to refinance the existing debt of specific projects.

Municipalities will have to disclose details of existing lenders and loans being refinanced in offer documents or placement memorandums, enabling investors to assess financial health and liquidity risks.

The regulator also provided clarity on fundraising by two or more municipalities through pooled finance vehicles. The issuer will specify disclosure requirements in offer documents, along with operational aspects such as agreements between pooled finance special purpose vehicles (SPVs) and municipalities, and escrow account mechanisms for repayment arrangements.

To encourage retail participation in municipal debt securities, issuers will be permitted to offer incentives such as additional interest or discounts on issue price to certain categories of investors, including senior citizens, women, serving and retired defence personnel, widows and widowers of defence personnel, retail individual investors and other categories as specified by SEBI.

The regulator will also specify face value and trading lots for municipal debt securities issued through private placement. Such securities may have a face value of Rs 1 lakh or Rs 10,000. Securities issued with a face value of Rs 10,000 will have a fixed maturity and cannot contain structured obligations.

SEBI has also permitted electronic modes for advertisements related to public issues of municipal debt securities.

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Considering the complexity and diversity of municipal operations, SEBI relaxed post-issue compliance timelines. The deadline for submitting unaudited half-yearly financial results has been extended from 45 days to 60 days from the end of the half-year, while the timeline for audited annual financial results has been extended from 60 days to 90 days from the end of the financial year.

The capital market regulator said the amendments are intended to support the development of the municipal debt market while maintaining appropriate investor protection safeguards.

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