Sebi Gives Green Light to Finance Companies; Allows Investment in Bad Debt Securities

Easing the norms for security receipts, markets regulator Sebi has allowed small finance companies to invest in bad debt securities.

On her last day in office on February 28, Sebi’s outgoing chief Madhabi Puri Buch, allowed smaller NBFCs and housing finance companies to invest in the security receipts. The decision expanded the horizon of the financial institutions which otherwise remained restricted.

Sebi said that the move aims to infuse liquidity into distressed assets while also safeguarding to prevent defaulting promoters from reclaiming assets. RBI is set to impose additional compliance measures, Sebi said.

Previously, a committee led by Sudarshan Sen, formed by RBI in 2021 recommended expanding eligibility to all NBFCs and housing finance firms.

Hari Hara Mishra, chief executive of the Association of ARCs in India said, “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.”