Navigating The Derecognition Test Under Ind As 109 In Indian Securitisation

Every quarter, Indian NBFCs and housing finance companies announce securitisation transactions that improve capital ratios, unlock liquidity, and signal disciplined balance sheet management. Yet some of those same transactions are later revisited and, in certain cases, restated as secured borrowings. The issue is rarely legal or structural. It is accounting; specifically, the misapplication of the derecognition requirements under Ind AS 109.

This article walks through where Indian structures most often fail: cumulative credit enhancements that leave economic risk with the originator, servicing arrangements that go well beyond administration, pass-through mechanics that look compliant on paper but are not, and a persistent under-appreciation of partial derecognition and continuing involvement. It also sets those requirements against the parallel; and sometimes divergent; framework under the RBI’s 2021 Master Directions. The aim is to give practising CAs a clear, working framework grounded in the actual decision tree in Ind AS 109.

1. GETTING THE SEQUENCE RIGHT: WHAT IND AS 109 ACTUALLY DOES

The derecognition model in Ind AS 109 is more structured than the familiar “cash flows – risks and rewards – control” shorthand suggests. In practice, five questions have to be answered in the right order.