₹35,000 Crore Structured Products at Risk Amid SEBI Scrutiny

India’s financial sector is under the microscope as SEBI, the country’s top markets regulator, tightens its grip on structured financial products. With more than ₹35,000 crore worth of these complex instruments being reviewed, SEBI’s next moves could shake up the entire investment landscape, according to a recent exclusive by Moneycontrol.

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What’s Got SEBI Worried?

Structured products combine various financial tools into a single investment, often tailored for wealthy individuals and big institutions. They’re sophisticated, and that’s part of the problem. SEBI has flagged serious concerns that some of these products are being used to skirt financial rules.

Back in January 2024, SEBI released a consultation paper revealing over 40 cases where Alternative Investment Funds (AIFs) were allegedly used to bypass rules on things like foreign direct investment (FDI) limits and keeping bad loans off the books. We’re talking about nearly ₹30,000 crore in those cases alone. Even more startling, SEBI believes up to ₹1 lakh crore in AIF-linked investments may have been structured to dodge regulations, including those related to classifying non-performing assets (NPAs).

Why It Matters to Banks, NBFCs, and Investors

This crackdown is already sending ripples through the financial world. Major players like HDFC Bank and RBL Bank have started adjusting their financial strategies after the RBI instructed them to set aside funds for risky AIF-related investments. That was back in December 2023, and more institutions are following suit.

For investors, especially those holding structured products without capital protection, the risks just got a lot more real. SEBI had already banned non-capital-protected structured products back in 2013, and now it looks like they're doubling down on protecting investor interests.

What’s SEBI Doing About It?

To clean up the space and bring in more transparency, SEBI has proposed a series of new rules:

• ₹1 Crore Minimum Investment: Only well-informed, financially capable investors should be in the game. That’s the idea behind the new threshold for securitised debt instruments.
• Digital-Only Transfers: All these debt instruments must be issued and traded in demat form. It makes tracking easier and boosts transparency.
• Better Disclosure Rules: Issuers now have to share detailed info, credit ratings, scenario analyses, and valuation models, so investors know exactly what they’re getting into.
   

Some in the industry are pushing back. They say these stricter rules could limit flexibility and bump up costs. But SEBI is holding firm, arguing that these changes are necessary to stop rule-bending and keep the financial system clean.

What Happens Next?

SEBI’s investigation is ongoing, and the outcome could reshape the future of structured products in India. Whatever happens, one thing’s clear: transparency, regulatory compliance, and strong risk management will be the name of the game going forward.

For investors and institutions alike, staying informed and adaptable will be key. As the rules evolve, so must your strategies.