Fund houses can be part of inter-creditor agreement

The Reserve Bank of India (RBI) on Wednesday clarified that it had no issues with mutual funds (MFs) or other set of creditors participating in the inter-creditor agreement (ICA) process, in cases where a portion of the outstanding debt is lent by non-bank entities.

“When banks dealt with individual cases, they found that a good portion of the outstandings of individual entities were from insurance companies, mutual funds and others. When you have an ICA that covers only 50-60 per cent of the outstandings of the company, then you are not doing anything about the remaining 40-50 per cent. So, it is necessary to look at the entire liability of an entity comprehensively,” RBI Governor Shaktikanta Das said during his media interaction after the monetary policy meet.

The Securities and Exchange Board of India (Sebi) is yet to give its green light to MFs to participate in the ICA process for resolution of Dewan Housing Finance Corporation (DHFL). MFs’ debt exposures to DHFL stood at ~4,184 crore at the end of May with as many as 160 schemes exposed to the company. The exposure levels in June are significantly lower but that is largely on account of industry-wide markdowns triggered by DHFL’s downgrades and default in June.

Das further added that the RBI has been holding meetings with other regulators on the ICA framework.