Capital markets watchdog SEBI has said that that provision for standstill agreements between mutual funds and their borrowers does not exist in any regulations.
The remark from the SEBI chairman, came a day after Subhash Chandra-led Essel Group claimed it has got unanimous backing from lenders including fund houses to further extend its repayment timelines for its balance dues.
Mutual funds had first given an extension, called as standstill agreement, to the financially troubled group till September 2019, creating a new precedent.
In this and other cases, mutual funds have acted liked bilateral lenders not like investors. Funds have no skills of credit assessment like lenders.
This move was done in the face of a massive decline in the market price of Zee Entertainment Enterprises, the flagship company in the group, where promoters had pledged holdings.
However, it is not clear to investors what is the practical implication of this statement by the SEBI chairman. SEBI has condoned the standstill agreement for six months without taking any action.