Sebi allows small finance companies to invest in bad debt securities – The Times of India

MUMBAI: Markets regulator Sebi has eased norms for security receipts – issued by asset reconstruction companies (ARCs) to manage bad loans – by allowing smaller finance companies to invest in the financial instruments.
Sebi’s outgoing chief Madhabi Puri Buch in a notification on Feb 28, her last day in office, allowed smaller NBFCs and housing finance companies to invest in the security receipts, expanding a market that was restricted to larger financial institutions.
The move aims to inject liquidity into distressed debt but comes with safeguards to prevent defaulting promoters from reclaiming assets. RBI may impose additional compliance measures, Sebi said.
So far, only deposit-taking NBFCs, systemically important non-deposit-taking NBFCs, infrastructure finance companies, and asset finance firms were allowed to buy security receipts.
A committee led by Sudarshan Sen, formed by RBI in 2021 to review ARC regulations, had recommended expanding eligibility to all NBFCs and housing finance firms. It also proposed allowing high-net-worth individuals (Rs 1 crore+), corporates (Rs 10 crore+), trusts, family offices, pension funds, and distressed asset funds to invest.
“Investment in security receipts can offer an alternative investment class with higher income yield. Small NBFC/HFC squeezed for margins can look at it as an investment option,” says Hari Hara Mishra, chief executive of the Association of ARCs in India. However, he stresses the need for greater transparency on ARC performance, particularly historical recoveries.