Amidst the concerted efforts by the government and the Reserve bank of India to rein in the mounting bad loans issue, Securities and Exchange Board of India Chairman Ajay Tyagi cautioned mutual fund firms against letting some of such money flow into the industry by way of debt funds.
Nonperforming assets in the banking system should not shift to mutual funds by way of debt funds. The industry should be careful about that, Tyagi told an industry summit organised by the Association of Mutual Funds in India.
Care should be taken that NPAs do not get shifted to mutual fund portfolio by way of debt transfer.Ajay Tyagi, Chairman, SEBI
He also asked fund houses to improve the due diligence mechanism and to reduce their dependence on credit rating agencies for the same.
“There are instances of default on debt portfolio, so naturally mutual funds need to strengthen their due diligence and evaluation mechanisms, and not only depend on credit rating agencies,” he said.
The SEBI chief also called for consolidation saying over 40 fund houses are selling more than 2,000 products.
As bad loans in the banking system crossed Rs 8 lakh crore, the government and RBI have worked out an insolvency mechanism under which 12 largest bad loans have been referred to the National Company Law Tribunal for liquidation proceedings.
Also Read: Why RBI Picked These 12 Accounts For Insolvency Action
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