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The IMF recommends stronger supervision of individual loans, collateral valuation, connected borrower groups, and related-party transactions
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India is transitioning to the ECL framework to improve credit risk transparency. By incorporating dynamic, forward-looking assessments, banks will better forecast losses, manage risks, and enhance accountability, but challenges remain in implementation, especially for smaller institutions
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A higher risk weight will require banks and NBFCs to set aside a higher amount as loan provisioning, which will impact their capital ratios and may force them to increase interest rates on such products to check the impact on RoE
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Investors must not commit for a very long tenure as secondary market liquidity for corporate bonds is limited. Longer tenures can throw up negative surprises
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The key reason could be the approach in pricing credit risk. Past bad loan cycles have shown that private sector banks have demonstrated a more robust credit risk pricing ability compared with their public sector counterparts.
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The decision has been taken based on the recommendation of the Mutual Fund Advisory Committee (MFAC) and discussions held with the mutual fund industry.
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Amit Bhosale explains the true nature of credit risks.
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There is genuine risk aversion. MFs are staying away from below-AAA rated securities
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Even when investing for more than five years, ultra short duration, low duration and money market funds are healthy options
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The fund manager decided to follow a similar credit risk strategy across many debt fund categories
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Investors, financial advisors and fund houses have much to learn from the debt fund fiasco of the past year
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The category has funds with a solid track record. But given the volatile markets, interest rate movements and the recent credit events, prudent selection of schemes is important.
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Schemes investing in top-grade instruments, ensuring adequate diversification and maintaining a high pedigree carry lower risk for investors
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Experts advise investing in short and medium duration schemes where the fund manager also allocates to g-secs
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You should look at the modified credit ratio in the light of events in the recent past.
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Mandating market-linked valuation of securities, tighter lending norms against shares are positives; AMC bailout of schemes not addressed
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Credit events usually happen when the economy does not do well. We are not out of the problem fully. More trouble cannot be ruled out, though most of it is behind us.
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A diversified portfolio, large asset base important; debt market experts recommend mid-rung performers, suggest not to go by past returns
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While choosing funds, you should opt for schemes that take low credit and liquidity risks.
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Debt funds are not as easy to understand as bank fixed deposits. The good side is they offer you a chance of better tax-efficient returns. Ask questions to your advisor about what the fund does, where it invests, how much credit risk it takes.
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If you want returns from debt funds, make sure you’re ready to take on the accompanying risk
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According to data by Morningstar, a total of 10 fund houses had lent to 16 companies belonging to Essel Group
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After giving the green signal to side-pocketing, SEBI has given the option to fund houses to segregate bad assets. But there are strict conditions to prevent misuse.
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