While the Securities and Exchange Board of India’s (SEBI) move to allow security receipts issued by asset reconstruction companies (ARCs) will add liquidity to the securitisation market, the regulator needs to allow more groups of investors to trade in them, industry experts said. Following its board meeting on Thursday, the market regulator said that its board has approved the framework for listing of security receipts (SR), issued by ARCs, under SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 (SDI Regulations). “A separate chapter detailing the framework for listing of SR’s will be added to the SDI Regulations,” it said. Siby Antony, chairman, Edelweiss Asset Reconstruction Company believes that the move would enable SRs to be more liquid but added that this alone does not help because qualified institutional buyers (QIBs) who alone are allowed to trade in SRs are limited. “The SRs have been illiquid so far and only very informed investors can trade in them. That is why QIBs are limited to banks, insurance companies and large NBFCs and unless that list is expanded to include may be ultra high net worth individuals (UHNIs) or high net worth individuals (HNIs) and even some companies, this listing has only a limited effect,” Antony explained.
Eshwar Karra, chief executive officer, Phoenix ARC, said it was a long pending demand of the ARC and banking industries. “Listing of security receipts would create a secondary market and add to the liquidity,” he added. In the Union Budget of 2017-18, finance minister Arun Jaitley had said that listing and trading of SRs issued by a securitisation company or a reconstruction company under the SARFAESI Act will be permitted in SEBI-registered stock exchanges. “This will enhance capital flows into the securitisation industry and will particularly be helpful to deal with bank NPAs,” he had said. Meanwhile, bankers feel that since the redemption rates in the SRs are very low banks are holding on to the SRs. “If there is a secondary market available for SRs then there can be trading rotation of the security receipts,” said Pallav Mohapatra, deputy managing director of Stressed Assets Management Group, State Bank of India (SBI) He added that other classes of investors should also be permitted in SRs. “If it is broadened then more players will be able to participate, enhancing the liquidity of the market,” Mohapatra explained. At present, banks get 15% of the ARC sale proceeds in cash, while the rest is settled in SRs which can be redeemed as and when money is recovered. That apart, banks need to pay anywhere between 1.5-2% as management fee to the ARC.