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    Question

    In case of securitization of standard assets, what is

    the Minimum Retention Requirement (MRR) for underlying loans of maturity – 24 months or less; ?
    A 15% of the book value for loans being securitised Correct Answer Incorrect Answer
    B 10% of the book value for loans being securitised Correct Answer Incorrect Answer
    C 5% of the book value for loans being securitised Correct Answer Incorrect Answer
    D 2% of the book value for loans being securitised Correct Answer Incorrect Answer
    E 1% of the book value for loans being securitised Correct Answer Incorrect Answer

    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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