Raising finances against receivables

One of the means of raising finances is by the absolute assignment of receivables (along with underlying securities) from an obligor to an assignor or originator, that are structured as bankruptcy remote from the originator, and any creditors of the originator. Where the assignee is a special purpose vehicle (SPV), it issues instruments in the form of pass through certificates (PTCs) to raise funds for the purchase of receivables.

For years this market remained unregulated, however, the guidelines on the assignment of standard assets issued on 1 February 2006 by the Reserve Bank of India (RBI) changed this. More recently the Securities and Exchange Board of India (SEBI) (Public Offer and Listing of Securitized Debt Instruments) Regulations, 2008, were notified by SEBI in relation to listed public and private placements of instruments relating to the raising of finances by assignment.

The RBI guidelines stipulated conditions to be fulfilled by banks, non-banking financial companies (NBFCs) and the trust in order to achieve a “true sale”, while also outlining the accounting treatment expected of such transactions.

H Jayesh is the founder partner, Harsha Punjabi is a senior associate, and Maymoona Mandviwala is an associate at Juris Corp. The firm is a full-service law firm based in Mumbai and specializes in financial transactions including capital markets and securities, banking, corporate restructuring and derivatives.