In March 2025, the Securities and Exchange Board of India (SEBI) has allowed all Non-Banking Finance Companies (NBFCs), including Housing Finance Companies (HFCs) to invest in Security Receipts (SRs) issued by Asset Reconstruction Companies (ARCs).
- All NBFCs including HFCs regulated by the Reserve Bank of India (RBI) are hereby specified as qualified buyers to permit to invest in SRs under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) (54 of 2002) subject to certain conditions.
Note: Previously, only non-deposit takings NBFCs with assets size of Rs 50 crore and above were permitted to make investments in SRs.
Key Points:
i.This key change introduced by the SEBI aimed at promoting investments in the bad loans space. It has also broadened the scope of participants who can buy SRs from ARCs, thereby boosting liquidity in the distressed asset market.
ii.As per SEBI, NBFCs have been mandated to ensure that the defaulting promoters or their related parties do not directly or indirectly get access to secured assets through SRs.
- Also, they are required to comply with such other conditions specified by RBI from time to time.
About Asset Reconstruction Company (ARC):
i.ARC is a Financial Institution (FI) that buys Non-Performing Assets (NPAs) from banks and FIs and help them to recover from the NPAs.
ii.The Net Owned Funds (NOFs) of ARCs should be Rs 100 crore or above and they are require to maintain a Capital Adequacy Ratio (CAR) of 15% of its risk-weighted assets.
SEBI Extended Deadline for Reporting Differential Rights Issued by AIFs
In March 2025, the SEBI issued a circular in exercise of powers given under Section 11(1) of the SEBI Act, 1992, read with regulations 20 (22) and 36 of AIF Regulations, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
- As per the circular, SEBI has extended the deadline for reporting differential rights issued by Alternative Investment Funds (AIFs) to March 31, 2025 (previously, the deadline was February 28, 2025), following industry representations seeking more time for compliance.
- As per SEBI, the circular came into force with immediate effect.
Key Points:
i.This key change originated from the amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, notified on November 18, 2024, which aimed at ensuring that the investors receive rights and proceeds distribution in proportion (pro-rata) to their commitments within a scheme, while retaining pari-passu treatment.
ii.In December 2024, SEBI issued a circular and introduced a framework for differential rights that AIFs may offer without affecting other investors.
- As per these rules, AIFs that filed their Private Placement Memorandum (PPM) with SEBI on or after March 1, 2020, and issued differential rights outside the standard guidelines were required to submit reports by February 28, 2025.
Note: AIF is any fund established in India which is a privately pooled investment vehicle which collects funds from sophisticated investors. It includes investments in private equity, hedge funds, real estate, among others.
About Securities and Exchange Board of India (SEBI):
It was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India (GoI). It was given statutory powers on 30 January 1992 through SEBI Act, 1992.
Chairman- Tuhin Kanta Pandey
Headquarters- Mumbai, Maharashtra
