In its scheduled board meeting on Thursday, amidst the prevailing pressures on mutual funds on account of their exposure to troubled NBFCs and HFCs, The Securities and Exchange Board of India is expected to take decisions on various aspects including encumbrance of shares by promoters. It is also expected to look into issues relating to MF exposure to NBFC’s and HFCs and loan against shares by mutual funds.
What are the key issues on the agenda?
While concerns have been raised overexposure of mutual funds to debt and pledge of shares and corporate/promoter guarantee among others, Sebi is likely to bring in some changes in respect of disclosure of encumbrances.
While Sebi is expected to broaden scope of disclosure of encumbrance within the Takeover Regulations, it is likely to cover all kinds of encumbrances including private limited companies and non-disposal undertakings. It is also expected to make it mandatory for promoters disclose any creation or invocation or release of encumbrance to the stock exchanges within 7 working days.
They may also be asked to disclose the purpose of encumbrance if the combined encumbrance crosses 20 per cent of the share capital of the company.
What other decisions may be taken?
Sebi is also expected to reduce the overall exposure of debt-oriented mutual funds into financial services sector from the current levels of 40 per cent. It is also expected to introduce a minimum cover of two times the loans against shares by mutual funds.
If these decisions come through in Thursday’s meeting, while they may push higher transparency standards, they could also go ahead to protect the interest of investors of mutual funds.
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