Governing the Securitisation Market: Implications of SEBI’s 2025 Amendments to the Issue and Listing of Securitised Debt Instruments and Security Receipts Regulations

[Komalpreet Kaur is a final year law student at Hidayatullah National Law University]

INTRODUCTION

Securitisation is the process of pooling financial assets such as loans into tradable securities. This has now emerged as a modern financial instrument enabling conversion into liquid assets with risk diversification. The market is regulated in India by Securities Exchnage Board of India (SEBI) and Reserve Bank of India (RBI). SEBI amended  SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 issuing SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) (Amendment) Regulations, 2025, these are applicable for listing and issuing Securitised Debt Instruments and Security Receipts. The article argues that while SEBI’s 2025 amendments aim to democratize and stabilize the securitisation market however, could lead to challenges undermining market efficiency.

SEBI 2025 AMENDMENTS TO SECURITISATION REGULATIONS

On May 5, 2025; SEBI issued a notification amending the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, introducing a comprehensive framework to enhance transparency, governance, and risk management in securitisation. The amendment targets the growing complexity of Securitised Debt Instruments and security receipts, which have become critical for financing sectors like real estate and infrastructure.

The move can be said to resonate with international frameworks like BASEL 3’s emphasis on “skin in the game” which means to have a risk and stake in the investment offered, which could potentially address internal concerns like opaque structures and mis-selling. While SEBI Regulations themselves don’t directly derive from Basel III, they have been aligned through amendments and RBI-SEBI coordination to accommodate Basel III compliant instruments in India’s capital markets. The cross-regulatory linkage is operationalized through disclosure mandates, eligibility norms, and risk management provisions.

KEY AMENDMENTS

A move towards Risk management and investor’s protection

The amendment gives a clearer definition of what are the financial assets which can be securitised by providing an exclusive list of prohibited assets.  It allows assets from RBI regulated entities such as banks and NBFCs to be securitised, it includes equipment leasing receivables, listed debt securities, trade receivables from accepted invoices, rental receivables, and specific debts notified by SEBI, all backed by written contracts, while it does not include unlisted securities or other complex instruments.  Further, Regulation 2(1)g sub clause (ii) has now increased scope of prohibited debts or receivables in resonance with RBI SSA guidelines including practices like  re securitisation, short term instruments like commercial papers against long term assets, synthetic  securitisation . The regulation also prohibits securitisation against certain assets including credit facilities where borrowers can flexibly withdraw and repay for example facilities like credit cards.

Further, Key changes include mandatory quarterly disclosures, minimum retention requirement of 5-10% of book value for originator wherein the originator compulsorily has to hold a minimum percentage of the issue, dematerialised compulsion for issue, alongside provisions governing SPDEs and trustees. The amendment also introduces a clean up call option, allowing rolling back the asset pool if the value falls below a threshold of 10% of the original asset value.

SEBI aims to bolster investor confidence and market integrity by introducing measures like track record for originators and obligors under and rolling out a code of conduct under Reg. 19A and Schedule 3 respectively.

It also increases transparency by introducing mandatory quarterly performance reports from originators to trustees backed by annual audit certifications under Regulation 10A) to give investors clear insights into underlying assets coupled with SPDEs and trustees required to submit a half yearly report to SEBI increasing supervision. Under the same provision it mandates to call meetings of investors if requested by at least one-tenth of investors by value or there is a case of service default or breach of trust deed and provisions for virtual meetings, reinforcing investor’s protection.

Regulation 30C rolls out minimum holding period which means before loans are securitised it shall be held for minimum three months for the loans with tenor period upto 2 years and six months for loans above 2 yrs.

Further, Regulation 36A is amended mandating advertisements for public issues to be published electronically and in regional dailies giving details about the issue, prohibiting misleading content or celebrity endorsements.

However, these enforcements come with tradeoffs such as stringent requirement criteria of minimum ticket size of ₹1 crore under Regulation 30A. By setting a high ticket size, SEBI aims to restrict participation primarily to institutional investors such as banks, mutual funds, and pension funds, who possess the financial knowledge, resources, and risk management capabilities to evaluate and absorb the inherent complexities and potential volatility of these instruments.

HOW THE REFORMS COULD AFFECT THE MARKET?

SEBI’s 2025 amendments aims to keep the securitisation market steady but potentially causing ripples in liquidity, stability and risk management.

STABILITY AND INVESTORS PROTECTION

The amendment seeks to reap market stability and investors protection by introducing a strict criteria and limiting the scope for financial assets by striking off clearly risky assets eligible for securitisation, enhancing the governance in securitisation.

Further, Regulations like 30B and 30C promote stability and security by mandating minimum retention of 5-10% of book value of the asset and minimum holding 3-6 months before securitisation of asset pool, shifting the responsibility towards the originator by balancing their interest with that of investors and holding a share to face the consequences of any risk thereby safeguarding asset quality. This ensures that the originators hold a part of downside discouraging reckless lending and ensures careful asset selection addressing moral hazard concerns.

Requiring homogenous asset pools (Regulation 19 A) also mitigates the risk by clubbing together loans with similar characteristics making performance more predictable and traceable. Other requirements like a 3 years trace record for originators and obliggers ( Regulation 19A) ensures lowering the risk of poorly constructed and untrusted loan pools entering the market, protecting investors and stabilizing the market ecosystem.^[1]The moves ensure the asset quality, risk management and diligently constructed pools.

The enhanced trustee responsibility under regulation, code of conduct under schedule (iii) coupled with provision for holding meetings on investor’s call ensures that organisers and safekeepers of the asset pool hold accountability towards the investors by formally introducing the same through these provisions enforcing investors interest and mindful management.

Regulation 36A laying compulsory advertisement policy helps to harness informed choices and non misleading information for the investors.

The clean up call option (Regulation 30D) is limited to 10% of assets allow originators to call back or wind up inefficient pool of assets which means the originator can use this option only when the outstanding value of the pool has fallen down to 10% or less of the original value ( example if the value of the ₹10 crore pool comes down to ₹1 crore) to ensure that it is rolled back only when the pool is actually depleted mostly because it has been written off or repaid making it uneconomical to keep the deal trading. The SEBI ensures that it is not used to abuse the provision and dodge losses. 

The liquidity facilities (Regulation 14(3)) is restricted to regulated entities on market terms and proper structure, it acts as a safety net to pay for temporary cash flow disruptions to bridge issues like delayed payments from borrowers ensuring investors get paid on time  and not be misused for acts such as a credit enhancement mechanism to artificially increase the credit rating, covering issuers loss, meeting securitisation expenses, covering warranty breaches and other similar acts.

MARKET ACCESSIBILITY AND INCLUSIVITY

While the amendment seeks to ensure stability and security it favors institutional investors over small entities and retail investors by introducing a minimum ticket size of rupees ₹1 crore. This targets to bring sophisticated players into the market by potentially closing this market for small market players.

Further, prohibiting certain financial assets from securitisation such as re-securitisation, synthetic securitisation short term debts, revolving credit facilities puts a constraint on the originator's flexibility over pooling assets for securitisation limiting the scope of assets that can be securitised.

Regulation 30B and 30C requiring minimum holding value and minimum holding period limits liquidity and particularly burdens the originator with lesser capital reserves. The compliance cost might outweigh the benefit as a result it may deter smaller players, ultimately sidelining niche players limiting participation which may lead to liquidity shortages as observed during liquidity crunch in NBFC sector in 2018-19.

These market challenges can be overcome by balancing market integrity and accessibility. To ensure equal participation, instead of applying a uniform set of compliance requirements a tiered based regulations based on the size of originator and volume of transaction could be rolled out. A small originator should not be burdened to comply with requirements that are unreasonable according to the risk factor.

CONCLUSION

SEBI’s 2025 amendment to Securities and Exchange Board of India (Issue and Listing of Securitised Debt Instruments and Security Receipts), 2008 attempts to address the market vulnerabilities by placing a strict mechanism in place. The focus on risk management, investors protection and market stability. However, these steps may lead to over regulation for small market players such as retail investors. The securitisation market‘s growth and liquidity will require a wider participation of market players .The ultimate test of these amendments would be if it succeeds in creating a secure place without stifling market access.