SEBI to restrict companies from getting excessively leveraged

Securities and Exchange Board of India (SEBI), today said it would try to find ways to impose restrictions on big companies from getting excessively leveraged.

"Big entities create big mess. Regulators must explore ways to impose restrictions on big companies from getting excessively leveraged so that there is no systemic failure," SEBI chairman CB Bhave said while speaking at an 'Emerging Market Finance Conference' organised by the Indira Gandhi Institute of Development Research here in Mumbai.

Regulators need to check whether companies are excessively leveraged, he said, without elaborating.

"If any sector is over-leveraged for a long time, without doubt it will fail," Bhave said.

Recently SEBI has told asset management companies (AMCs) to refrain from exposure to real estate debt in certain schemes. The regulator had also directed AMCs to maintain a list of 'negative sectors' and give an undertaking that they would not invest in sectors appearing in that list.

Financial innovation must never lose sight of the real world, Bhave said.

On the mutual fund industry, the SEBI chairman said that it should focus on bringing down transaction cost to attract more investors to the equity market.

India's saving rate is as high as 40% but not enough savings go into risk capital, he said, adding that participation in risk capital should be increased.

"Lowering the cost of transaction is a very important issue for us. Financial innovation must focus on bringing down cost so that more and more people can participate in the equity market," Bhave said.