SEBI: Issued Circular on Provision regarding Segregation of Portfolios in the Covid-19 pandemic state

Because of the Covid-19 pandemic situation which the country is facing, the Securities Exchange Board of India (SEBI) released a circular regarding the Provisions concerning the Segregation of Portfolios.

On an earlier date of December 28, 2018, SEBI said that the segregated portfolio can be created in a Mutual Fund scheme by AMC in case of a credit event, which includes downgrade to below investment grade and subsequent downgrades in credit rating by the SEBI registered Credit Rating Agency (CRA).

Also, the Reserve Bank of India (RBI) published a circular on August 06, 2020, permitting the lending institutions to extend the resolution facility under ‘Prudential Framework for Resolution of Stressed Assets’ dated June 7, 2019, to borrowers having stress on account of Covid-19. RBI has also allowed all lenders of the borrower to sign the Inter Creditor Agreement (“ICA”)for resolving the stressed assets.

Accordingly SEBI another circular dated August 31, 2020, in which it has provided that if the CRA is of the view that the restructuring by the lenders/ investors is solely due to COVID-19 related stress or under the aforementioned RBI framework, CRAs may not consider the same as a default event and/or recognize default, and also mentioned about the date of the proposal for restructuring of debt received by AMCs shall be treated as the trigger date for the purpose of creation of the segregated portfolio.

It further said, “Such proposal of restructuring of debt received by AMCs shall be immediately reported to the Valuation Agencies, Credit Rating Agencies, Debenture Trustees and AMFI. AMFI, on receipt of such information, is to immediately disseminate it to its members.”

SEBI issued this Circular No.: SEBI/HO/IMD/DF4/CIR/P/2020/16 on September 2, 2020, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, and it came into force with immediate effect.

With Warm Regards,

CL Bureau.