RBI proposes demat-only securitisation notes, keeps Rs 1 crore minimum

The Reserve Bank of India (RBI) has proposed making dematerialised form mandatory for securitisation notes, while keeping the minimum investment size unchanged at Rs 1 crore. The draft norms, released on Monday, are aimed at streamlining the issuance and trading of these financial instruments.

Securitisation notes are instruments created when loans or receivables are pooled and converted into marketable securities. Currently, these notes can be held in physical or demat form. The proposed rule would require all new issuances to be in demat form, aligning with the broader market shift towards paperless securities.

Why the change?

The RBI's move is part of a broader push to enhance transparency and efficiency in the securitisation market. Demat holdings reduce the risk of fraud, loss, or damage associated with physical certificates. They also make it easier for investors to track and transfer their holdings.

Market participants have long sought this change, arguing that physical notes create operational bottlenecks. The proposal, if finalised, would bring securitisation notes on par with other debt instruments like bonds and debentures, which are already traded in demat form.

Minimum investment unchanged

Despite the proposed shift, the RBI has decided to keep the minimum investment size at Rs 1 crore. This threshold, introduced earlier, is designed to restrict participation to institutional and high-net-worth investors. The central bank has not indicated any plans to lower this limit.

The retention of the Rs 1 crore floor suggests that the RBI wants to maintain the wholesale nature of this market. Retail investors are unlikely to be affected, as securitisation notes are complex products that require a certain level of financial sophistication.

Industry reaction

Bankers and financial experts have welcomed the proposal, noting that dematisation could increase liquidity in the secondary market. With electronic records, trades can be settled faster, and the risk of counterparty default may decline.

However, some have pointed out that the transition could involve initial compliance costs for issuers. The RBI has invited comments from stakeholders, and the final rules are expected after a consultation period.

What happens next

The RBI has not yet specified a timeline for implementing the new norms. Once the comment period ends, the central bank will issue a final circular. Market watchers will be keen to see if the regulator introduces any transitional arrangements for existing physical notes.

For now, the proposal signals the RBI's intent to modernise the securitisation market. Investors and issuers should prepare for a gradual but decisive shift towards a fully dematerialised regime.