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IL&FS crisis: SEBI in talks with industry on mutual funds norms

SEBI has been scanning India's mutual funds' investments in the shadow banking sector since then.

December 07, 2018 / 03:27 PM IST

Capital markets regulator Securities and Exchange Board of India (SEBI) is in talks with industry to deal with fears of contagion effect on mutual funds due to a liquidity crisis faced by the country's non-banking finance companies (NBFC), SEBI Chairman Ajay Tyagi said on December 7.

The crunch hit India's shadow banks in September and October after Infrastructure Leasing and Financial Services (IL&FS) defaulted on a series of debt obligations spreading panic among other NBFCs.

Securities and Exchange Board of India (SEBI) has been scanning India's mutual funds' investments in the shadow banking sector since then.

"We are examining, in consultation with the industry, and will gradually take appropriate action," Ajay Tyagi, chairman of SEBI said in response to a question if changes are needed in mutual fund regulations.

Tyagi was referring to the crisis faced by mutual funds in September after IL&FS and some of its group companies defaulted on commercial papers, which led to massive outflows from liquid schemes.

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Mutual funds had faced huge redemption pressure during the month as liquidity in the banking system tightened. The liquidity crunch was largely because of advance tax payments and IL&FS' default.

Following IL&FS' default, the infrastructure lender's credit ratings were downgraded by multiple agencies. On September 10, rating agencies ICRA and CARE downgraded non-convertible debentures of IL&FS to BB from AA+. ICRA said the downgrade reflects "rising pressure on liquidity at the group level due to sizeable repayment obligations".

(With inputs from Reuters)
Reuters
first published: Dec 7, 2018 01:55 pm
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