Market regulator Sebi mulls tweaks to help AIFs buy stressed assets

The Securities and Exchange Board of India (Sebi) has proposed regulatory tweaks to enable the acquisition of stressed loans by alternative investment funds (AIFs) in accordance with the rules set by the Reserve Bank of India (RBI).

In December 2021, Sebi had allowed AIFs to introduce a new sub-category known as special situation funds (SSFs) to allow them to invest in stressed loans.

However, to enable AIFs to acquire stressed loans, SSFs had to be first included in the master directions issued by the RBI, the principal regulator for the sale and purchase of stressed loans in India. The RBI had communicated to Sebi a list of requirements in the framework including SSFs in its master directions.

These included setting a definition of SSFs and determining the eligibility of investors, deciding minimum holding period. To address the issues raised by the RBI, Sebi has floated a discussion paper to finalise the requirements communicated by the RBI.