Sebi Expands NBFC Investment Opportunities in Distressed Assets

The Securities and Exchange Board of India (Sebi) has permitted non-banking financial companies, including housing finance companies, to invest in security receipts issued by Asset Reconstruction Companies. This strategic move is expected to enhance liquidity in the distressed asset market by widening the pool of investors.

The Securities and Exchange Board of India (Sebi) has announced a significant policy shift, allowing all non-banking financial companies (NBFCs), including housing finance companies (HFCs), to invest in security receipts issued by Asset Reconstruction Companies (ARCs). The measure intends to stimulate interest and investment in bad loans.

This change is seen as a boost to liquidity in the distressed asset market, as it broadens the range of participants eligible to purchase security receipts from ARCs. ARCs play a crucial role in the financial ecosystem, acquiring bad loans from banks and financial institutions while issuing security receipts to investors.

According to Sebi's February 28 gazette notification, NBFCs, including HFCs regulated by the Reserve Bank of India, are designated as qualified buyers under the SARFAESI Act. This development comes with stipulations aimed at preventing defaulting promoters from regaining access to secured assets through these channels.

(With inputs from agencies.)