Why Indian Securitisation Deals Faced Listing Problems And How SEBI Plans to Fix Them
On May 04, 2026, Securities and Exchange Board of India issued a consultation paper proposing amendments to the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 (“SDI Regulations”).
At the heart of the consultation paper lies a problem that has quietly affected Indian securitisation transactions for several years: a securitisation transaction could be entirely permissible under the Reserve Bank of India securitisation framework and still face obstacles under the SEBI listing regime.
For example, the RBI’s Securitisation Transactions Directions, 2025 expressly permit securitisation of even a single eligible asset. Regulation 7(2) of the SDI Regulations, however, continued to prohibit any single obligor from constituting more than 25% of the securitised pool. The result was a practical inconsistency. Transactions involving concentrated but commercially significant exposures, such as infrastructure receivables, project finance cashflows or lease-backed structures, could be prudentially valid under RBI regulations while remaining effectively incapable of being listed under the SEBI framework.
That mismatch is precisely what the consultation paper now seeks to address.
The significance of these amendments becomes clearer when viewed against the scale of India’s securitisation market itself. According to ICRA, overall securitisation volumes increased by approximately 5% year-on-year to nearly ₹2.5 lakh crore in FY2026 and are expected to expand further to ₹2.6-2.7 lakh crore in FY2027.
At the same time, however, the listed SDI market remains relatively underdeveloped. ICRA notes that although listed SDI issuances have increased in recent years, most securitisation issuances continue to occur through the private placement route and the secondary market for SDIs remains shallow.
That is the larger context in which the consultation paper assumes significance. The issue is not merely regulatory consistency. The proposals appear directed toward making the SDI framework commercially usable for a wider range of securitisation structures.
While the proposed amendments appear technical at first glance, they reflect a broader shift in regulatory thinking. Indian securitisation regulation is gradually moving away from rigid structural restrictions and toward a more functional, risk-based approach focused on actual transfer of risk, operational independence and prudential supervision.
PROPOSAL I – Single Asset Securitisation which was allowed by RBI but blocked by SEBI
The RBI Framework Permitted Single Asset Securitisation
One of the most significant inconsistencies between the RBI and SEBI securitisation frameworks related to single asset securitisation.
Paragraph 4(19) of the Reserve Bank of India (Commercial Banks – Securitisation Transactions) Directions, 2025 expressly provides that “the pool containing a single asset eligible to be securitised is also permitted.” Similar provisions appear in the RBI’s 2025 Directions applicable to NBFCs, AIFIs and Small Finance Banks.
SEBI Continued to Follow a Diversification-Based Model
SEBI’s framework, however, continued to proceed on a fundamentally different assumption. Under Regulation 7(2) of the SDI Regulations, no single obligor can constitute more than 25% of the asset pool backing a securitised debt instrument.
The rationale behind this restriction was straightforward: diversification reduces concentration risk and therefore enhances investor protection. Early securitisation markets globally relied heavily on diversified receivables pools so that default by a single borrower would not materially destabilise the entire structure.
The RBI framework, however, reflects a more modern understanding of structured finance. Contemporary securitisation structures no longer rely solely on diversification as the primary mechanism for investor protection. Risk mitigation today is increasingly achieved through tranche structuring, overcollateralisation, reserve accounts, credit enhancement facilities, liquidity support arrangements and cashflow waterfall mechanisms.
The Regulatory Contradiction
This created a practical regulatory contradiction.
RBI permitted securitisation of even a single eligible asset. SEBI’s 25% concentration cap, however, effectively prevented such transactions from being listed under the SDI framework.
The inconsistency became particularly relevant for asset classes where concentration is commercially inherent to the transaction itself, including infrastructure receivables, project finance cashflows, lease-backed structures, rental receivable securitisations and institutional credit exposures.
What SEBI Now Proposes
The consultation paper now proposes to exempt RBI-regulated entities from the concentration restriction under Regulation 7(2).
In substance, SEBI appears to recognise that diversification is no longer the sole basis of investor protection within securitisation markets and that prudential supervision, disclosure obligations and structural credit protections may themselves sufficiently mitigate concentration concerns.
Why This Matters
The proposal does not eliminate the risks associated with concentrated exposures. Single asset securitisations continue to involve heightened obligor concentration risk, event dependency and valuation sensitivity. What the proposal reflects, however, is a broader shift away from rigid diversification-based restrictions and toward a more functional assessment of how risk is actually managed within modern securitisation structures.
PROPOSAL II – Replacing “Originator” with “Servicer”
Regulation 10A of the SDI Regulations continued to place certain quarterly disclosure obligations on the “originator” on the assumption that the originating entity would continue servicing and managing the receivables pool after securitisation.
That assumption increasingly stopped reflecting market reality.
In many modern securitisation transactions, the entity originating the exposure may not necessarily continue as the servicing entity responsible for collections, recoveries and operational management of the receivables pool. As a result, the entity legally responsible for disclosures was not always the entity actually handling the receivables or possessing operational visibility over pool performance.
To address this inconsistency, the consultation paper proposes replacing references to the “originator” with “servicer” in relation to certain disclosure and reporting obligations under the SDI Regulations.
Although operational in nature, the amendment reflects an important shift in regulatory recognition. Modern securitisation transactions may involve separation between origination and servicing functions, and the proposal seeks to align disclosure obligations with the entity functionally best placed to provide accurate information regarding the underlying receivables.
PROPOSAL III – Constitution of the Board of the SPDE
The Regulatory Concern: Independence of the SPDE
One of the recurring concerns in securitisation regulation is ensuring that the SPDE remains sufficiently independent from the originator. If the originator effectively controls the securitisation vehicle, the integrity of the transfer structure itself may come into question.
The SEBI Approach: Broad Separation-Based Restrictions
The SDI Regulations historically approached this issue through broad separation-based restrictions. Regulation 9(9) of the SDI Regulations currently provides that trustees associated with the sponsor, originator or entities under the same management cannot constitute more than one-half of the Board of Trustees of the SPDE
The RBI Approach: Focus on Effective Control
The RBI framework, however, approached the issue differently. Under Paragraph G of the RBI’s Securitisation Transactions Directions, 2025 applicable to commercial banks, NBFCs, AIFIs and Small Finance Banks, the originator may have only one representative on the board of the SPE and such representative cannot possess veto powers.
The RBI framework therefore focuses less on broad institutional separation and more on a narrower question: whether the originator exercises effective control over the SPE.
What SEBI Now Proposes
That difference in regulatory philosophy is precisely what the consultation paper now seeks to address. To align the SEBI framework with the RBI regime, the consultation paper proposes insertion of a proviso to Regulation 9(9) providing that where the originator is an RBI-regulated entity:
- the originator may have only one representative on the board of the SPDE; and
- such representative must be without veto powers.
Why it matters
The proposal reflects a broader shift in securitisation regulation away from rigid association-based restrictions and toward a more functional assessment of control and operational independence.
Proposal IV: Same-Group Transactions: Blocked by SEBI, Permitted by RBI
The Existing Restriction Under the SDI Regulations
A similar divergence was visible in relation to same-group securitisation transactions. Regulation 10(3) of the SDI Regulations currently provides that an SPDE cannot acquire receivables from an originator that is part of the same group or under the same control as the trustee.
The underlying concern was again one of independence and genuine transfer of risk. Historically, regulators viewed intra-group securitisation structures with caution because of concerns relating to sham transfers, cosmetic de-recognition and lack of operational separation.
The Position Under the RBI Framework
The RBI framework, however, does not impose any express prohibition merely because the originator and the SPE belong to the same group. Instead, Paragraph G of the RBI’s Securitisation Transactions Directions, 2025 applicable to NBFCs, Commercial Banks, Small Finance Banks and All India Financial Institutions focuses on:
- arm’s length dealing,
- absence of ownership interest, and
- absence of control by the originator over the SPE.
The Regulatory Inconsistency
A transaction could satisfy the RBI’s prudential conditions and still become ineligible for listing under Regulation 10(3) solely because of the group relationship.
What SEBI Now Proposes
The consultation paper therefore proposes to exempt RBI-regulated entities from the restriction under Regulation 10(3).
Why This Matters
Read together, both proposals reflect the same broader regulatory shift: moving away from rigid structural separation requirements and toward a more functional assessment of control, independence and arm’s length operation of the securitisation structure.
Proposal V: Winding-Up of Securitisation Transactions
The Existing Position Under the SDI Regulations
Under Regulation 45(2) of the SDI Regulations, suspension or cancellation of a trustee’s registration could potentially result in winding up of the securitisation scheme itself. The Explanation to the provision further clarifies that “winding up” would mean liquidation of the underlying asset pool and repayment of the proceeds to investors.
In practical terms, a trustee failure could therefore potentially trigger liquidation of the securitised assets themselves.
Why This Became Problematic
That position became increasingly difficult to reconcile with the RBI’s securitisation framework. The consultation paper notes that the RBI’s Securitisation Transactions Directions, 2025 do not permit unwinding of securitisation transactions except in limited situations, since such unwinding may effectively require buy-back or re-transfer of the securitised assets by the originator.
Accordingly, a regulatory mechanism that could potentially reverse the securitisation transaction itself was seen as inconsistent with the RBI’s prudential architecture, which treats securitisation as a completed transfer of assets and risk.
What SEBI Now Proposes
To address this inconsistency, the consultation paper proposes amendment of Regulation 45(2) such that, instead of directing winding up of the securitisation scheme, SEBI may direct appointment of a new trustee in place of the trustee whose registration has been suspended or cancelled.
The proposal also seeks removal of the existing Explanation to Regulation 45(2), since liquidation of the asset pool would no longer align with the revised approach.
Why This Matters
The proposal reflects a significant shift in regulatory approach.
Under the existing framework, a failure at the level of the trustee could potentially disrupt the securitisation transaction itself. The proposed amendment instead seeks to preserve continuity of the transaction by replacing the intermediary without disturbing the underlying securitised assets or the transfer structure.
In substance, the proposal treats securitisation as continuing market infrastructure rather than a structure capable of being routinely unwound because of intermediary-level failures
Conclusion
The consultation paper unquestionably resolves several structural inconsistencies between the RBI and SEBI securitisation frameworks. But the more important question is whether these amendments will materially change how securitisation transactions are actually structured and brought to market in India.
That question becomes particularly relevant for concentrated exposure transactions, infrastructure receivables, project finance cashflows, lease-backed structures and institutional credit exposures, which historically faced practical listing limitations under the SDI framework despite being otherwise permissible under the RBI regime.
If these amendments result in greater use of listed securitisation structures for such transactions, the consultation paper may ultimately mark a meaningful shift in India’s structured finance market. If market participants nevertheless continue preferring private placements and bilateral structures, it may suggest that the regulatory mismatch was only one part of a much larger issue involving liquidity, investor appetite, disclosure burdens and market depth within India’s securitisation ecosystem.
That, ultimately, will be the real test of whether the amendments merely resolve doctrinal inconsistencies or whether they genuinely expand the practical utility of the SDI framework itself.
