Murky use of private credit funds may invite harsh regulatory scrutiny
By Andy Mukherjee
There are plenty of high-performing private investment vehicles in India, but it’s the few that are being set up for dubious purposes that may bring harsher regulatory scrutiny to the country’s most rapidly expanding asset class.
So far, the most egregious use of these so-called alternative investment funds has been by nonbank finance companies, several of whom have employed these bespoke structures for pure regulatory arbitrage.
When it looked like their big-ticket borrowers, especially real-estate projects, were going to default, some financiers took recourse to new funds tailormade for them by Wall Street firms. Investors who pooled money were issued senior securities, earning them interest. The finance company also contributed, but...