The Securities and Exchange Board of India (Sebi) has sought feedback from the general public on the session paper until December 27.
The proposals have been floated after consultations with the RBI, which is the principal regulator for the sale and buy of harassed loans in India.
Sebi on Tuesday proposed modifications within the regulatory framework for Special Situation Funds to facilitate the acquisition of harassed loans. Special Situation Funds (SSFs) are sub-class Alternative Investment Funds (AIFs).
In a session paper, Sebi instructed a definition of ‘special situation assets’, eligibility of traders in SSFs by way of Insolvency legislation, restrictions regarding funding in linked entities, minimal holding interval, subsequent switch of loans, monitoring and supervision of such SSFs.
The proposals have been floated after consultations with the Reserve Bank of India (RBI), which is the principal regulator for the sale and buy of harassed loans in India.
The Securities and Exchange Board of India (Sebi) has sought feedback from the general public on the session paper until December 27. To allow SSFs to accumulate harassed loans, these funds must be a part of a RBI annexure pertaining to the switch of mortgage publicity.
In the session paper, the regulator has proposed amending AIF norms to make modifications to the regulatory framework for SSFs. Under this, Sebi proposed a definition for a ’particular state of affairs asset’ that features securities of investee firms, whose harassed loans are acquired by way of RBI Master Directions.
Further, SSFs having prior funding in securities of harassed firms shouldn’t be disqualified or barred from buying harassed loans of the stated firms. In addition, SSFs mustn’t spend money on or purchase a particular state of affairs asset if any of its traders is disqualified below the IBC rule about such particular state of affairs property. Further, particular state of affairs funds mustn’t spend money on its ‘related parties’.
Also, it has been proposed that SSFs ought to switch or promote harassed loans, solely to the entities enlisted within the RBI annexure. SSFs who’ve acquired harassed loans must be topic to a devoted supervisory framework. It has been instructed that SSFs ought to submit info in respect of all investments in harassed loans to a commerce reporting platform notified by RBI. This info consists of particulars of models issued, particulars of traders subsequent modifications in unit holdings, decision methods applied, and recoveries effected.
In January 2022, Sebi launched the framework for Special Situation that can make investments solely in harassed property. SSFs have been launched as a sub-class below Category I AIF.
“The challenges of stressed loans faced by the Indian financial system requiring significant capital infusion in Banks, Non-Banking Financial Companies (NBFCs), etc., necessitated exploring AIFs as a potential source of risk capital to supplement the efforts of Asset Reconstruction Companies (’ARCs’) in the resolution of stressed loans,” Sebi stated.
