Sebi chief warns MFs over bad debt

Mumbai: As rising bad loans from distressed companies keep bankers and the government on their toes, Sebi chairman Ajay Tyagi on Thursday cautioned mutual fund managers from adding bad debts to their portfolio. Tyagi said that in addition to the ratings assigned by credit agencies, fund houses should also do their own due diligence on companies before buying their debt papers.

The warning from the chief regulator came for the MF industry that manages over Rs 13 lakh crore worth of debt portfolio, within days after Sebi board decided to tighten regulations for credit rating agencies. This also came in the background of some major instances of fund houses getting stuck with bonds of companies which defaulted. In mid-2015, J P Morgan MF was stuck with a huge pile of Amtek Auto papers, while earlier this year about five fund houses were hit after Ballarpur Industries defaulted on its debt.

"There have been instances of default in debt portfolios of mutual funds. So naturally mutual funds need to further strengthen their own due diligence mechanism and not depend on credit rating agencies," the Sebi chairman said. Fund houses should be more careful that NPAs do not get transferred to mutual fund portfolios and for that fund managers need to be watchful and responsive, he said. The Sebi chief was speaking at AMFI first mutual fund summit in the city.

Talking about corporate governance, he said that of late, a larger number of mutual funds were actively voting on company resolutions and participating in the corporate governance structure of investee companies, which was an encouraging sign for the industry. Tyagi now wants other institutional investors to also follow suit. He said that Sebi was in the process of coming out with a stewardship code.

During the opening session of the summit, Reliance Group chairman Anil Ambani suggested Tyagi make MF investing simpler and allow anyone with a legitimate bank account to invest in financial products, since their bank KYC is already in place. This would ensure better utilisation of technology to improve penetration of the fund industry and facilitate faster transactions, and also simplify advertising norms to communicate the value proposition of mutual funds better.

A Balasubramanian, AMFI chairman, informed the gathering that earlier this month the fund industry's assets under management had crossed Rs 20 lakh crore and said going by the growth rate of the last five years, it is poised to cross Rs 94 lakh crore by 2025, from about 13.3 crore investors, from 5.6 crore now.