What is the minimum retention requirement (MRR)?

The minimum retention requirement is the rule that stops a lender from selling a loan pool and walking away from it. An originator that securitises debt must keep a defined slice of that pool on its own books, in a form it cannot hedge, sell or hand to a group company. In India the requirement now sits in Regulation 30B of the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, inserted by the amendment notified on 5 May 2025. This guide explains what the minimum retention requirement is, how the percentages work, and where it shows up in filings. It is not investment advice.

Why does a retention rule exist at all?

Because securitisation splits the person who chose the borrower from the person who bears the loss. A lender that can originate a loan, sell it into a special purpose distinct entity and book a gain has every reason to care about volume and no mechanical reason to care about quality. Making the originator hold a slice puts its own money behind its own underwriting.

The rule is often described as skin in the game. The regulation describes it more precisely, as the retention of a minimum percentage of book value, in specified forms, that cannot be unwound.

What are the percentages?

Three cases, from Regulation 30B(2) and (3):

Note how the 24-month test is written. It does not ask whether the deal is short. It asks whether any of the cash flows in the transaction is scheduled to mature within 24 months. One short-dated leg pulls the whole transaction into the 5 percent band.

In what form must the slice be held?

For residential mortgage backed securities, Regulation 30B(4) sets a waterfall.

Where up to 5 percent of the book value of loans is being securitised, retention comes first from the first loss facility if one is available. If there is no first loss facility, or retaining all of it still amounts to less than 5 percent, the balance comes through retention of the equity tranche. If the first loss facility and the equity tranche together still fall short of 5 percent, the balance is retained pari passu in the remaining tranches sold to investors.

Where more than 5 percent of the book value is being securitised, the originator may retain through the first loss facility, the equity tranche, or any other tranche sold to investors, in any combination.

Two exclusions matter more than they look:

• Overcollateralisation does not count as a first loss facility for this purpose.
• The interest only strip does not count at all. Investment in the Interest Only Strip representing the Excess Interest Spread or Future Margin Income is excluded whether or not it is subordinated.

Both exclusions close the same gap. Each is a way of appearing to hold risk while actually holding a claim on future income.

What can the originator not do afterwards?

Regulation 30B(5) lists four standing conditions:

1. It may not reduce the retained percentage through hedging of credit risk, or by selling or encumbering the retained interest.
2. It must retain and maintain the minimum risk itself, and may not pass it to any of its group entities.
3. The form of retention may not change during the life of the securitisation.
4. The retained risk, measured as a percentage of unamortised principal, must be maintained on an ongoing basis, except where the retained exposure falls through repayment or through the absorption of losses.

Condition four is the one that makes the disclosure meaningful. Retention is not a test passed once at issuance. It is a level that has to hold as the pool amortises.

How is MRR disclosed?

In the half-yearly filing the trustee makes with SEBI and with the stock exchange where the instruments are listed, under the circular dated 16 December 2025 that takes effect from 31 March 2026. Both prescribed formats carry the same three lines:

• MRR as a percentage of book value of assets securitised and outstanding on the date of disclosure.
• Actual retention as a percentage of the same base.
• Types of retained exposure constituting the MRR, broken into credit enhancement (equity or subordinate tranches, first or second loss guarantees, cash collateral, overcollateralisation), investment in senior tranches, liquidity support, and any other form.

Those first two lines are worth pausing on. The format asks for the requirement and the reality as separate numbers, on the same base, in the same table. Under-retention is visible on the face of the disclosure rather than something you have to reconstruct. The rest of the format is walked through in how to read an SDI disclosure.

MRR is not the only skin-in-the-game rule

The other one is time rather than money: the minimum holding period requires the originator to have held a loan for a set period before it can be assigned to the trust at all. The two are routinely confused, and the difference is set out in minimum retention requirement vs minimum holding period.

A retention rule is a structural safeguard, not a performance guarantee. It aligns incentives and gets reported twice a year. Flock reports public regulatory filings with each claim sourced and dated, and takes no view on any instrument.