The International Financial Services Centres Authority (“IFSCA”), vide circular dated July 11, 2024 (“Circular”), has permitted IFSC Banking Units (“IBUs”) to participate in synthetic securitisation program of their parent banks (“Securitisation Program”). The Circular defines ‘synthetic securitisation’ as a structure wherein credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of funded or unfunded credit derivatives or guarantees that serve to hedge the credit risk of the portfolio while the exposure continues to remain on the balance sheet of the lender.

An IBU may participate in the Securitisation Program subject to compliance with the following 4 (four) conditions:

1. The regulatory authority that is responsible for regulation of the parent bank in the jurisdiction where the parent bank is incorporated, licensed or established (“Home Regulator”) has: (a) adopted Basel III framework; and (b) not prohibited the banks under its jurisdictions from undertaking such transaction;
2. IBU shall notify IFSCA before the exposures of the IBU are incorporated in the Securitisation Program;
3. IBU shall comply with provisions of Prudential Directions (PRU), IFSCA Banking Handbook (as revised from time to time); and
4. IFSCA may require the IBU to submit a copy of the reports being submitted to the Home Regulator for such transactions to the extent such report pertains to the assets of the IBU included in the Securitisation Program.

The Reserve Bank of India, vide Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021, has proscribed synthetic securitisation by lenders including overseas branches of Indian banks.

Please find a copy of the Circular, here.

This update has been contributed by Aastha (Partner) and Aditi Singh Kashyap (Senior Associate).

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