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BS Fund Cafe: One misstep can set MF industry back by 10 yrs, says UK Sinha



Former Sebi chairman and chief guest U K Sinha (third from left) with BS Fund Managers of the Year - (from left) HDFC MF

The Indian mutual fund (MF) industry has grown exponentially in the past five years, but one misstep can take it 10 years backwards, says U K Sinha, former chairman of the Securities and Exchange Board of India (Sebi).

While delivering his speech as chief guest at the Business Standard Fund Cafe 2019, Sinha said the Rs 24-trillion MF industry needed to win trust of the ordinary person on the street and had to adapt to the changing landscapes, particularly on the technology front.

“It has taken a lot of efforts for this industry to come up to the current level. One incident can take this industry back by 10 years,” he said referring to the UTI MF episode of 2000-01.

The domestic asset management industry has undergone major turbulence in the past one year, particularly with regard to the exposure of debt schemes to papers of some corporates with high debt.

Sinha raised concerns over the industry’s exposure to the non-banking financial companies (NBFCs). “One of the distributing trend I have noticed is the exposure to commercial papers (CPs). In the past three years, it has gone up three times. If we look at outstanding CPs of NBFCs, 60 per cent is with MFs. Over 17 per cent of the MF assets are invested in just one sector, which is NBFCs. This was 13 per cent in 2014. The total exposure to the NBFC sector is over Rs 2 trillion and add to that another Rs 1 trillion in equity exposure. This is a substantial number and it should worry us,” he said.

While the exposure of the MF industry to NBFCs was higher, it has come down substantially in the past one year due to risk aversion caused by the defaults at IL&FS.

Sinha said there was a lot of learning for the industry from recent events.

“There have been worrying moments. These developments are not unique to India, they can happen anywhere in the world. We need to learn from these mistakes,” he said.

Sinha stressed that the MF industry needed to look after the ordinary investor. “MF is now on the radar of a person who has a small investment to make. This wasn’t the case seven years ago. The person on the street whose trust you have won must be retained,” he said.

Sinha warned that the industry should keep out small investors when it comes to experimenting with new products.

He also highlighted how the industry was losing the edge when it came to beating the benchmark returns.

“The returns of actively-managed equity schemes during 2015-16 were vastly superior, with more than 80 per cent of funds outperforming the benchmarks. That number has come down to 40 per cent,” he pointed out, adding that the existence of funds could be questioned if they failed to beat the benchmark returns over the long term.

“An important trend our MF industry should take note of is that globally more money moving from active to passive,” he said emphasising the need to keep costs of investing in check.

Sinha said given the might of the MF industry, it could play a big role in enhancing the governance standards in listed companies.

“World over the asset management industry has taken a lead in enhancing corporate governance in companies that they invest in. In order to make your industry more credible and to serve the investors and shareholders, the MF industry can give a big push to enhance environment, social and governance (ESG) factor,” he said.

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Sitharaman’s sops for NBFCs may perk up lending, ease liquidity stress



Illustration by Binay Sinha

To further ease the liquidity stress in the non-banking sector and nudge them to revive their lending activities, Finance Minister (FM) Nirmala Sitharaman on Friday announced a slew of measures for non-banking financial companies (NBFCs) and housing finance companies (HFCs). The government hopes this will result in more credit support for purchase of houses, vehicles, and consumption goods.

The government has provided additional support of Rs 20,000 crore to the stressed housing finance companies from National Housing Bank (NHB). With this, the additional liquidity support for the HFCs from NHB has gone up to Rs 30,000 crore.

In the Union Budget last month, the FM had encouraged public sector banks (PSBs) to buy high-quality pooled assets of NBFCs up to Rs 1 trillion for which the government would provide a one-time six-month partial credit guarantee for the first loss of up to 10 per cent.

The Reserve Bank of India (RBI) had also chipped in by tweaking banks’ bond-holding norms. This will allow banks to borrow an additional Rs 1.34 trillion exclusively for buying such pooled assets and giving loans to NBFCs. The FM on Friday said this partial credit guarantee scheme will be monitored at the highest level in each bank. Through this, it is expected that many of the assets will get quickly pooled and NBFCs will receive the necessary liquidity. “NHB has already settled some of the issues. NBFCs are receiving money from the banks and are moving towards funding,” said Sitharaman.

Sanjaya Gupta, managing director, PNB Housing Finance, said “This will support growth and ease the liquidity crunch. HFCs will now get an additional Rs 20,000 crore from NHB. The initiatives have potential to kick start the real estate sector.”

The government has also permitted NBFCs to use Aadhaar-authenticated bank KYC to avoid repeating the same process when a customer approaches it for credit. This has been a long-standing demand. The necessary changes in the Aadhaar regulations and Prevention of Money Laundering Act rules will be made, the FM said.

“This will streamline the process and also reduce frauds,” said Raman Aggarwal, chairman, Finance Industry Development Council.

The government has also asked PSBs and NBFCs to fast-track their collaboration to provide credit to micro, small and medium enterprises, small traders, self-help groups, and micro finance industry client borrowers.

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PACL Case: Sebi panel invites expression of interest for 28,974 properties




A committee headed by Justice R M Lodha has invited expression of interest (EoI) from prospective buyers for a total of 28,974 properties belonging to PACL Group.

Market regulator Sebi had set up a committee headed by former Chief Justice of India R M Lodha following a Supreme Court order to refund money to investors in the matter of PACL Group.

As per the notice issued by Sebi, the committee has divided the total 28,974 properties belonging to PACL group in four zones — east, west, north and south — with maximum properties being located in the southern zone.

Regarding PACL properties, the apex court’s order dated July 30 observed “we also leave it open to the committee to receive any further offers and to explore them after duly publishing a further notice on the website,” the notice said.

In pursuance of apex court’s order, the committee “invites Expression of Interest from prospective buyers clearly indicating therein, list of properties in each zone, its circle rate, the offer amount and other relevant details,” the Friday notice said.

“The proposal should be for properties in each zone aggregating in value not less than Rs 1,000 crore,” the notice added.

The notice further said that the last date of receipt of proposals is September 9.

PACL, also known as Pearl Group, had raised Rs 60,000 crore from public in the name of agriculture and real estate businesses and was found by Sebi to have collected these funds through illegal collective investment schemes over 18 years.

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Improved market access for domestic retail investors with Aadhaar-based kYC



Markets, Investors, Indices, Stocks

The government will allow Aadhaar-based KYC for domestic retail investors, and necessary amendments to the rules under the Prevention of Money Laundering Act will be issued.

Announcing a slew of measures to boost the economy, the government said the Depository Receipt Scheme 2014 is expected to be operationalised soon by Sebi. “This will give Indian companies increased access to foreign funds through American Depository Receipt (ADR)/ Global Depository Receipt (GDR),” she said.

In order to improve market access for the domestic retail investors, Aadhaar-based KYC will be permitted for opening of demat account and making investment in mutual funds. In this regard, necessary notification for amendments in PMLA rules would be issued.

Besides, steps would be taken with regard to offshore rupee market.

“To bring offshore rupee market to domestic stock exchanges and permit trading of USD-INR derivatives in GIFT IFSC, Ministry of Finance is working with RBI to introduce this measure shortly,” the government said.

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