{"id":174662,"date":"2022-03-16T20:57:27","date_gmt":"2022-03-16T15:27:27","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=174662"},"modified":"2022-03-16T20:57:27","modified_gmt":"2022-03-16T15:27:27","slug":"why-special-situation-funds-are-necessary","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/why-special-situation-funds-are-necessary\/","title":{"rendered":"Why special situation funds are necessary"},"content":{"rendered":"\n<p><strong>News<\/strong>: Recently, Indian financial markets witnessed two crucial reforms. One was release of a dedicated regulatory framework for <strong>special situation funds (SSFs)<\/strong> by SEBI and, the other was approval of a new dual-structure\u00a0for bad-bank (called <strong>NARCL-IDRCL)<\/strong> by RBI.<\/p>\n<h5><strong>Why have such new reforms been undertaken? <\/strong><\/h5>\n<p>India suffers from a bad loan problem which requires higher provisioning, and locking up more capital in the banking system. This reduces credit supply and hurts economic growth.<\/p>\n<p><strong>Special Situation Funds (SSFs)<\/strong> can buy bad loans (in addition to Asset Reconstruction Company (ARC) which can also do the same). This can release capital locked-up in the banking system and help improve credit supply.<\/p>\n<h5><strong>Concept of Special Situation Fund (SSF) <\/strong><\/h5>\n<p>SSFs is a sub-category of Category I Alternative Investment Funds (AIFs). AIFs manage privately pooled funds. The funds are raised from sophisticated investors with deep pockets.<\/p>\n<p>Traditionally, AIFs could participate in the equity markets. But, could not participate in the <strong>distressed debt markets<\/strong>. It is because regulations did not allow AIFs to participate in the secondary market for corporate loans extended by banks and NBFCs.<\/p>\n<p>Now, a special sub-category of AIFs, namely SSFs can participate in the secondary market for buying loans extended to companies that have defaulted on their debt obligations.<\/p>\n<h5><strong>What more steps can be undertaken regarding SSFs?<\/strong><\/h5>\n<p>SSFs must be allowed to have seamless access across the entire secondary market. It should be allowed to have access for investment as well as non-investment grade corporate debt (loans and bonds). It is an international practice. It was also suggested by the RBI task force (chaired by T N Manoharan) on secondary markets for corporate loans.<\/p>\n<p>SSFs could also be allowed to participate in the secondary market for corporate debt even before the company defaults on its debt obligations. It has multiple advantages as given below:<\/p>\n<ul>\n<li>It will help lenders and bond investors to <strong>offload potentially stressed assets <\/strong>to SSFs before any default.<\/li>\n<li>SSFs would also get <strong>adequate time for debt aggregation <\/strong>before default. It reduces the collective action problems that may arise after default during insolvency or restructuring.<\/li>\n<\/ul>\n<p>Indian lenders or bond investors should have <strong>full freedom to sell their loans or bonds in the secondary market <\/strong>at the best price possible, irrespective of whether default has happened or not.<\/p>\n<h5><strong>Conclusion<\/strong><\/h5>\n<p>Introduction of SSFs promises to usher in a modern era of <strong>distressed debt investing<\/strong> in India.<\/p>\n<p><strong>Source: <\/strong>The post is based on an article <strong>\u201cWhy special situation funds are necessary\u201d<\/strong> published in the Indian Express on 16<sup>th<\/sup> March 2022.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>News: Recently, Indian financial markets witnessed two crucial reforms. One was release of a dedicated regulatory framework for special situation funds (SSFs) by SEBI and, the other was approval of a new dual-structure\u00a0for bad-bank (called NARCL-IDRCL) by RBI. Why have such new reforms been undertaken? India suffers from a bad loan problem which requires higher&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/why-special-situation-funds-are-necessary\/\">Continue reading <span class=\"screen-reader-text\">Why special situation funds are necessary<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-174662","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1698955374},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/174662","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=174662"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/174662\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=174662"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=174662"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=174662"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}