April 21: An order of the Delhi high court obtained by private sector lender Indiabulls Housing Finance against market regulator SEBI has put mutual fund houses in a tight spot. The HC has granted Indiabulls, a non-banking financial company (NBFC), the permission to not pay its debenture holders including fund houses interest and principal as long as the RBI allows banks and NBFCs to offer moratorium to their borrowers. Fund managers now fear that other NBFCs may take the same route and not pay MFs for the next few weeks, The Times of India reported.
This is the first time in India that a situation has arisen where fund houses may not be in a position to meet their payment obligations to their investors if they don’t get money from the issuers of debentures, that is NBFCs. “A situation like this has never happened. Looks like more NBFCs will take this same route and not pay MFs on the NCDs they hold, and the MFs will fail to pay to investors,” a top fund manager said. “One of the ways out could be for the RBI to step in like in 2008 and 2013 and guarantee a line of credit to the fund houses.”
So far, the RBI has not spoken about providing a line of credit to the fund houses. SEBI is also working to find a solution to the imbroglio, sources said. While the RBI has allowed banks to provide a moratorium to their borrowers, the Indian Banks Association specifically excluded NBFCs. A meeting among lenders on Saturday was inconclusive with banks deciding to approach the RBI.
Sources in credit rating agencies said that with the court order, they might have to suspend their rating for Indiabulls or they might inform their investors that given the current scenario ratings may no longer be relevant.
According to reports, Edelweiss Financial Services has also moved the Bombay High Court to restrain rating agencies from revising its double-A rating during the lockdown period. Sources said the company wants more time to communicate its plans to the rating agency.