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Letter to BS: NBFCs feel the pinch as mutual fund houses curb risks

A number of companies have pledged a large percentage of promoter equity as collateral for getting loans from mutual funds (MFs)

Business Standard 

NBFC, funding, funds
Illustration: Ajay Mohanty

This refers to “NBFCs feel the pinch as mutual fund houses curb risks amid tight liquidity” (February 22). A number of companies have pledged a large percentage of promoter equity as collateral for getting loans from mutual funds (MFs). Some of these companies despite having defaulted in making repayments have signed agreements with lenders not to sell the pledged shares. By signing such agreements, MFs are foregoing their option of recouping a part of the value/full value of the loans which have remained unpaid. To prop up the promoters of defaulting companies, these MFs are doing a disservice to their unit holders by lowering the value of the latter’s investments. It is the job of MFs to maximise investor value and not diminish it by artificially propping up defaulting promoters. The Securities and Exchange Board of India needs to look into this issue. Similarly, if the lenders entering into agreements are lending non-banking financial companies (NBFCs) then the Reserve Bank of India must intervene. After all, NBFCs borrow from banks to lend to companies. These arrangements between lending NBFCs and defaulting companies adversely impact bank depositor interests.

Arun Pasricha, New Delhi



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First Published: Sun, February 24 2019. 23:17 IST
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