Question
In case of securitization of standard assets, what is
the Minimum Retention Requirement (MRR) for underlying loans of maturity greater than 24 months ?Solution
Securitization is the process of converting illiquid assets, like loans, into tradable securities, essentially transforming them into a form that can be bought and sold in the marke t. In securitization, the Minimum Retention Requirement (MRR) is a key aspect, as defined by the Reserve Bank of India (RBI) in its Master Directions. It mandates that originators of securitized assets retain a certain percentage of the credit risk associated with those assets. This ensures the originator has a continued stake in the performance of the securitized assets and encourages them to carry out proper due diligence. MRR Requirements (as per RBI guidelines):
- For loans with a maturity of 24 months or less, the MRR is 5% of the book value of the loans being securitized.
- For loans with a maturity greater than 24 months , the MRR is 10%.
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