Promoters borrowing from the mutual fund industry have recently come under public scrutiny in light of the fall in shares that are often pledged as collateral for such loans. After Zee promoters, the Anil Dhirubhai Ambani Group has become the next corporate entity to reach an agreement with lenders. These agreements throw up many questions: how should these instruments be rated, how should they be valued, and more importantly how much money has been lent to such entities both by the NBFCs and the mutual fund industry and can the risk aversion now derail debt markets and equity markets?
Industry experts say promoters are largely funded by mutual funds and non-banking financial companies, and, as the industry grows, the ways to manage risks should also be changed.
“As the time evolves, the way we manage the risk has to undergo a change,” said A Balasubramanian, CEO of Aditya Birla Sun Life AMC.
V S Rangan, executive director of HDFC, said, “Whenever you go through these structures normally you have the collateral which is given in the form of shares. There is also additional collateral which is kept free by the promoters to be topped up as and when there is a requirement to make up for the margin.”
“So long as the top-up margin is available for the promoter to put in even when there is a fall in the price, I do not think it will lead to any systemic crisis, but if the top-up is also used up then that’s is where one may see a bit of stress coming in,” he further added.
V Srinivasan said, "We will have to see who can refinance promoter loans. System liquidity is not a measure of liquidity available to pockets that needed,” he added. It won't be easy to refinance promoter loans over next 12-18 months, he said, adding that ability to raise equity to extinguish debt remains critical to avoid any accidents.