Sebi still weighing Amfi suggestion to allow mutual funds to sign ICA

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Published: August 22, 2019 3:06:25 AM

In the absence of the market regulator’s green signal to MFs on signing ICAs, the Dewan Housing Finance Corporation resolution plan is expected to remain stuck.

Sebi, Amfi, mutual fund, ICA, market news,  Securities and Exchange Board of India, mutual funds, ICAAt this juncture, the matter is also being pursued by the RBI with the markets regulator.

The Securities and Exchange Board of India (Sebi) is still contemplating on the Association Of Mutual Funds in India’s (Amfi’s) recommendation to allow mutual funds (MF) to sign the inter-creditor agreement for resolution of stressed assets. On being asked whether the regulator has decided on the matter, Sebi chairman Ajay Tyagi said, “We have received a reference from Association of Mutual Funds in India and we are examining the issue, that’s all I have to say.”

In the absence of the market regulator’s green signal to MFs on signing ICAs, the Dewan Housing Finance Corporation resolution plan is expected to remain stuck.

According to sources who spoke to FE, since July, Amfi along with bankers and the Indian Banks’ Association have separately written to Sebi seeking its inputs on whether MFs can sign the ICA. At this juncture, the matter is also being pursued by the RBI with the markets regulator.

On Tuesday, FE has reported that the markets regulator may have concerns that the terms of the resolution process could end up violating the mandate of some of the schemes. Sources indicated that in principle, the regulator may not have a problem with fund houses signing the ICA so long as the scheme mandate is not violated. Market experts claim that they are unsure if Sebi would allow this even after side-pocketing has been done. Sources said clarity would be needed on whether the restructuring happen before side-pocketing or after.

According to some of those who have written to Sebi, the regulator may be comfortable allowing funds to sign the ICA provided there are some pre-conditions attached to it and also that it may not be a blanket permission to MFs to sign similar such ICAs. Permission may be granted on a case-to-case basis.

However, mutual funds claimed that they had not heard from the regulator on whether or not they could sign the ICA. Mutual funds have an exposure of Rs 2,200 crore to the home loan financier via non-convertible debentures and Rs 180 crore of commercial papers. The cash-strapped company also owes banks Rs 38,000 crore and an additional Rs 34,000 crore to bondholders. All banks with exposure to DHFL, including State Bank of India and Union Bank of India, have already signed an ICA as mandated by the RBI’s June 7 circular on norms for resolution of stressed assets.

Earlier this month, RBI governor Shaktikanta Das had stated the central bank has been in conversation with fellow regulators Sebi and Insurance Regulatory and Development Authority of India (Irdai) on allowing other categories of lenders, apart from banks, to also become signatories to the ICA as it would allow the various sections of creditors to “look at the whole liability of an entity comprehensibly”. It is understood the Irdai has already given its consent to insurance companies signing the ICA.

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