Rs50,000 Cr at Stake; SEBI Clampdown Coming on MFs Lending against Shares to Promoters
Alarmed by the recent Zee episode in which nine mutual funds (MFs) were found to have lent a staggering Rs7,000 crore to promoters of Zee group and then found themselves unable to liquidate the security of listed shares for fear of being unable to recover their full amounts, the Securities and Exchange Board of India (SEBI) is preparing to bring new regulations that will expressly prohibit MFs from entering into such transactions, according to sources.
 
Not just that, the market regulator is planning to direct MFs to convert all existing innovative security structures into direct pledge of shares, to give at least some measure of control to the MFs.
 
Of late, with the use of fancy footwork by promoters and MFs alike, there has been a spate of similar transactions with NDUs (non-disposal undertakings), non-encumbrance undertakings and covenants limiting transfer of shares, but all falling short of pledging the shares.
 
Considering how illusory the security of pledged shares has proven in the Zee episode, SEBI feels all other fancy structures, obviously, provide no safety at all to investors and these need into direct pledge of shares immediately.
 
This will also ensure full disclosure of the extent of shares pledged, because promoters have been playing hide-and-seek with the disclosure requirement through the use of non-pledge structures.
 
The MF industry has currently lent over Rs 50,000 crore to promoters of listed companies against their shareholding and, not surprisingly, given this huge magnitude of public funds involved, SEBI is moving double quick to preempt imbroglios such as the one involving Zee.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

Like this story? Get our top stories by email.

User

COMMENTS

tapan sur

1 week ago

Financial irregularities pop up even though many new regulations are drafted so that irregularities do not take place, but ruthless, financial operators, find all loopholes to short change and make money on the sly, or in most cases lose money, the common man suffering without any remedy. Will this duping of the common man through financial products ever stop, or financial products mean wheeling dealing by unscrupulous operators who indulge in this financial game, and we The common man must stop our investments unless there are exemplary punishments for irregularities? Our democracy & our elected governments are 72 years old, and even though we have many new regulations to stop irregularities, it does not stop as there are no exemplary punishments, in fact, we have climbed the ladder for ease of doing business as the world knows that after taking huge loans for their business, one day business can be closed & the operators can flee with huge money in their banks.

Amitesh Kishore

2 weeks ago

Who will ask SEBI when they freewheel their wagon on AMC greese?

Ramesh Poapt

2 weeks ago

let the bubble burst fully. very much required. now.

Vaibhav Dhoka

2 weeks ago

Will SEBI ask concern AMC's to bear the loss or as usual investors will have to bear the brunt of fund houses wrongdoing.

REPLY

ASHOK RAGHAVAN

In Reply to Vaibhav Dhoka 2 weeks ago

Is this why we pay the fund managers their fees?

Mutual Funds Have More Than Rs16,000 Crore Exposure to IL&FS, DHFL and Essel Group - Report
If you thought only banks were jittery about the on-going reality and rumours of corporate debt defaults, you are wrong. Mutual funds (MFs) have also felt the tremors, with top schemes holding more than Rs16,000 crore worth of debt securities of shaky group companies like Essel, DHFL (Dewan Housing Finance Corporation) and the IL&FS (Infrastructure Lending & Financial Services) group, according to a study by India Infoline.
 
The first blow to fund houses came in September 2018 when IL&FS defaulted on inter-corporate deposits and borrowings, and credit rating agencies downgraded its credit ratings by several notches in a single instance.
 
As the months passed by, more troubles at companies, such as DHFL and Essel, came into the open. Once again, MFs panicked and investors faced losses. This is the list of the fund houses with the highest exposure to these companies’ debt.
 
 
 
 
For the MF industry, which manages over Rs22 lakh crore of investors’ assets, an exposure of around Rs16,000 to Rs20,000 crore may look like chump change. However, the real loss is faced at the scheme level, where exposure can vary depending on how the fund manager has diversified the schemes’ portfolio.
 
We had discussed recently about a short-term debt scheme that had more than 30% of its exposure to a single borrower  – DHFL – that could lead to huge losses to investors, in case DHFL defaults.
 
The housing finance company – DHFL – is already under probe by the ministry of corporate affairs (MCA) for alleged fraud involving siphoning off debt money into offshore assets and shell companies, as exposed by Cobrapost.
 
Essel group chairman Subhash Chandra is also in talks with banks and MFs, to allow him some time and not declare his debt as default. News sources claim that the Essel group chairman has given a personal guarantee for his payment obligations to his creditors, mostly MFs, on an ‘irrevocable and unconditional’ basis.  

 

Like this story? Get our top stories by email.

User

COMMENTS

tapan sur

1 week ago

Financial markets, banks all are looting common man's hard earned money, without any problem or punishment, on the sly taking advantage of loopholes. We elect governments so that we get a peaceful sleep, but where is that sleep, now what should we do?

Ramesh Bajaj

1 week ago

For a small investor, it is a shock.
Can you tell me about DISHTV. SHould I get out.?.....
Cut short my loss?
Am a Senior citizen, 71 yrs.

Sudhakar Ojha

1 week ago

Which specific schems of the MF houses have the exposures ?

Suketu Shah

2 weeks ago

Just goes to show how daft the so -called great fund managers of mutual funds are.They are actually suicidal to trust and it is almost certainly suicidal to invest in mutual funds.

Ramesh Poapt

2 weeks ago

will be happy if,mf sabi hai, ads r stopped immediately.

Vaibhav Dhoka

2 weeks ago

Our regulators like SEBI exhaust their energy in flimsy matters like self declaration by IFA'S, no commission on IFA'S own business and other flimsy regulation. If this energy would have been in supervision of fund houses investor's would have been saved. Our regulators don't stand to what they owe to.

Equity Mutual Fund AUM Grew 290% Over the Past Five Years: Report
The Indian mutual fund (MF) industry has shown an impressive growth, especially in the past two decades, not just in the scale of assets under management (AUM) but also in terms of number of folios. The industry size almost doubled in the past three years to Rs21.8 lakh crore in FY17-18 from Rs10.8 lakh crore in FY14-15 and quadrupled in the past 10 years from Rs5.1 lakh crore in FY07-08, says a note from CARE Ratings.
 
 
According to the report, growth in equity AUM of about 290% in past five years is more than three times the growth established by debt AUM of around 88%. "Deployment of funds by debt MFs has undergone a major shift in the past five years, in terms of increased allocations to instruments such as corporate debt, commercial paper and reduced investments in certificates of deposit. Focusing on the NBFC sector, investments in its commercial papers reduced post August 2018, while funds deployed in corporate debt paper rose," it added.
 
 
The AUMs of Indian MF industry grew at a notably higher compounded annual growth rate (CAGR) of 27% from FY13-14 to FY17-18 and during FY18-19, it grew to Rs22.85 lakh crore as of December 2018, registering 7% growth over March 2018. However, the report says, this growth rate of 7% is much lower compared with the growth rate of 21% registered in December 2017 over March 2017. 
 
 
As on December 2018, Indian MF industry had a total of 80.3 million folios, out of which about 76% were of equity- or growth-oriented schemes, around 14% of debt- or income-oriented schemes, 8% of balanced schemes and remaining 2% of exchange traded funds (ETFs) and fund of funds investing overseas.
 
According to the ratings agency, FY18-19 (up to December 2018) has remained a positive year for equity schemes (net inflow of Rs0.9 lakh crore), ETF schemes (net inflow of Rs0.26 lakh crore) and balanced schemes (net inflow of Rs0.12 lakh crore). 
 
 
"However, debt schemes witnessed net outflows worth Rs0.42 lakh crore during the year. This can be attributed to outflow of Rs2.11 lakh crore from liquid or money market schemes, which invest in short term assets such as treasury bills, certificates of deposit and commercial paper, etc. This was mainly due to a rising interest rate scenario in FY2019 which made bank fixed deposits (FDs) more attractive than debt MFs, as they offer better returns at lower risk. Also on account of the non-banking finance companies (NBFC) liquidity issue, mutual funds moved away from such investment in debt instruments to an extent," it added.
Like this story? Get our top stories by email.

User

COMMENTS

nagaraju lanka

2 weeks ago

Why Sterlite technology shares are dropping every day.Shall we buy the stock at this point

REPLY

Nasir Ahmed Rayadurg

In Reply to nagaraju lanka 2 weeks ago

I did notice a video posted on youtube that the promoters of Sterlite technologies have pledged a high percentage of their shares in business that is non-Sterlite. Analysts are also citing the root cause of the big drop in share prices of Sterlite.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

online financial advisory
Pathbreakers
Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
online financia advisory
The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
financial magazines online
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
financial magazines in india
MAS: Complete Online Financial Advisory
(Includes Moneylife Online Magazine)