Sebi allows small finance companies to invest in bad debt securities

MUMBAI: Markets regulator Sebi has eased norms for safety receipts – issued by asset reconstruction companies (ARCs) to handle bad loans – by permitting smaller finance companies to invest in the monetary devices.
Sebi’s outgoing chief Madhabi Puri Buch in a notification on Feb 28, her final day in workplace, allowed smaller NBFCs and housing finance companies to invest in the safety receipts, increasing a market that was restricted to bigger monetary establishments.
The transfer goals to inject liquidity into distressed debt however comes with safeguards to stop defaulting promoters from reclaiming property. RBI might impose extra compliance measures, Sebi mentioned.
So far, solely deposit-taking NBFCs, systemically necessary non-deposit-taking NBFCs, infrastructure finance companies, and asset finance companies had been allowed to purchase safety receipts.
A committee led by Sudarshan Sen, fashioned by RBI in 2021 to assessment ARC rules, had beneficial increasing eligibility to all NBFCs and housing finance companies. It additionally proposed permitting high-net-worth people (Rs 1 crore+), corporates (Rs 10 crore+), trusts, household workplaces, pension funds, and distressed asset funds to invest.
“Investment in security receipts can offer an alternative investment class with higher income yield. Small NBFC/HFC squeezed for margins can look at it as an investment option,” says Hari Hara Mishra, chief govt of the Association of ARCs in India. However, he stresses the necessity for higher transparency on ARC efficiency, significantly historic recoveries.