Sebi proposes adjustments in Particular State of affairs Funds

In a consultation document, the market regulator suggested a definition of “special situation assets”, qualification of investors in SSFs under Insolvency law, restrictions regarding investment in linked entities, minimum holding period, subsequent transfer of loans, monitoring and supervision of such. SSFs.

To enable SSFs to obtain stressed loans, these funds must be part of an RBI annexation related to the transfer of loan exposure. SSFs should not invest in or acquire a special situation asset if any of its investors are disqualified under the IBC rule on such special situation assets. Further, special situation funds should not invest in its “related parties”.

Sebi’s consultation paper proposes that SSFs transfer or sell stressed loans, only to the entities listed in the RBI annex. SSFs that have acquired stressed loans should be subject to a dedicated supervisory framework.

It was suggested that SSFs should submit information about all investments in stressed loans to a business reporting platform notified by RBI. This information includes details of units issued, details of investors subsequent changes in unit holdings, resolution strategies implemented and recoveries.

The consultation paper also suggested that every SSF scheme should have a corpus of at least one hundred crore rupees. It should accept an investment of value not less than ₹10 crore from an investor. In the case of an accredited investor, the SSF should accept an investment of a value not less than ₹5 crores. Further, in the case of investors who are employees or directors of the SSF or employees or directors of the manager of the SSF, the minimum value of investment shall be twenty five lakh rupees.

In January 2022, the market regulator introduced the framework for a Special Situation, which will invest only in stressed assets. SSFs were introduced as a sub-category under 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 possible source of venture capital to complement the efforts of Asset Reconstruction Companies (‘ ARCs’) in the resolution of stressed loans,” Sebi said.

The market regulator sought comments from the public until December 27. The proposal was presented after consultations with the Reserve Bank of India (RBI), which is the main regulator for the sale and purchase of stressed loans in India.

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Updated: 28 Nov 2023, 23:12 IST