The Reserve Bank of India (RBI) has issued draft amendment directions relating to securitisation transactions applicable to Commercial Banks, Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs) and All India Financial Institutions (AIFIs). According to the latest regulatory update, the proposed amendments aim to enhance efficiency, liquidity and transparency in the issuance and subsequent transfer of Securitisation Notes (SNs). The central bank has invited comments and feedback from the public and other stakeholders on the draft directions by 27 August 2026 through its Connect2Regulate platform, email, or other prescribed channels.
India's credit system faces significant structural challenges that limit capital flow to small businesses and individuals. According to reports from CNBC TV18, a local non-banking financial company may underwrite a ₹50,000 personal loan for a modest tailor in a tier-three town, but once the loan is booked, the lender's capital remains locked in that single contract for three years. This creates a bottleneck where institutional capital sits unused while small businesses struggle for funding.
As reported by CNBC TV18, securitisation offers a solution by turning local credit intelligence into standardised, high-quality institutional investments. According to Ashish Mehrotra of Northern Arc, this approach helps capital flow smoothly to hardworking individuals and small enterprises building India's $5-trillion economy from the ground up. The process transforms individual loans into tradable securities that can be sold to institutional investors, freeing up capital for new lending opportunities. In securitisation, loans are pooled into special purpose vehicles and split into tranches, with senior tranches absorbing losses last and paying steadier, lower yields, while mezzanine and equity tranches sit lower in the waterfall and pay more for taking losses first.
According to the report, securitisation addresses the current inefficiency where institutional capital remains untapped while small businesses struggle for funding. The approach enables lenders to unlock capital from existing loans and reinvest it in new credit opportunities, potentially expanding the reach of financial services to more small enterprises and individuals across India's diverse economic landscape. Recent market data shows that specialty finance—much of it consumer- and asset-backed—drew US$37 billion in fundraising in 2025, more than the prior two years combined, and overtook direct lending as the most common new fund launch through the first three quarters of the year. Asset-based finance is projected to reach US$9.2 trillion by 2029, driven by bank retrenchment and the need for private capital to fill the gap as US household debt has more than doubled from roughly US$8 trillion in 2004 to over US$18 trillion in 2025.
Consumer lending represents a significant opportunity within India's private credit market, offering diversification from traditional direct lending strategies. Consumer loans differ fundamentally from corporate credit as they are repaid from household income rather than business cash flows, typically showing lower correlation to equities and corporate bonds due to different macro triggers. BNPL—short-term, often interest-free installment credit at the point of sale—has emerged as a fast-growing subsegment, with global gross merchandise value purchased through BNPL hitting roughly US$560 billion in 2025, up 13.7% year-on-year. However, BNPL carries unique characteristics including interest-free terms where yield comes from merchant fees, and often skips traditional credit bureau reporting, creating what industry research calls "phantom debt" across multiple BNPL providers.
