To protect the interests of MF investors, SEBI might soon ask fund houses to maintain a minimum collateral cover
Market regulator Securities and Exchange Board of India (SEBI) intends to tighten norms on issue of debt instruments with promoters’ shares pledged as collateral, according to a report by The Times of India. The move comes after several mutual funds (MFs) experienced payment delays from companies over such instruments, commonly called loans against shares.
To protect the interests of MF investors, SEBI might soon ask fund houses to maintain a minimum collateral cover, the report added. Moneycontrol could not independently verify the story.
There have been calls to ban loans against shares, but SEBI is opposed to such a plan at the moment, the report said.
“The understanding within SEBI is that as long as all the risks relating to these instruments (LAS) are adequately covered, they should not be banned since these are a popular source of funds for promoters and entrepreneurs,” the article quoted as saying.
The Reserve Bank of India (RBI) has similar rules for banks and non-banking financial companies (NBFCs), where it prescribes a minimum collateral cover for lending against shares.
The Essel Group of companies has delayed several payments to fund houses, which in turn affected the MF investors.SEBI has even issued show-cause notices to HDFC MF regarding its investments in Essel Group’s debt instruments. Kotak MF has also received a show-cause notice, the report stated.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.