The Advisory Committee of SEBI on Wednesday proposed that the exposure limits of liquid funds to non-banking finance companies (NBFCs) and housing finance companies (NBFCs) be reduced in a phased manner.
Banks’ refusal to lend has triggered a cash crunch at NBFCs, in turn raising concerns that they will struggle to repay liquid funds that have bought their debt papers.
Currently, liquid funds can have an aggregate 40% exposure to these lenders, including 25% to NBFCs and 15% to housing finance companies.
This move comes amid heightened investor concerns about liquid funds holding debt issued by troubled groups such as Infrastructure Leasing & Financial Services Ltd (IL&FS), Dewan Housing Finance Ltd and Essel Group. It is mainly large organizations and corporate entities which invest in liquid funds to park their temporary surpluses.
Interestingly, a significant share of fresh investor flows in May 2019 went into overnight funds, which invest in paper maturing overnight, which have minimal credit and interest rate risk.
Read EquityPandit’s Technical Analysis of Indian Stock Market