Skip to main content

Sebi breather on loan default disclosure

Sebi breather on loan default disclosure
Regulator is considering increasing the timeline for disclosing defaults to 30 days
The Securities and Exchange Board of India (Sebi) is looking to issue a more relaxed loan default disclosure framework.

According to sources, the market regulator now plans to give up to a month’s time to companies for disclosing loan defaults and also make provision to explain the nature of the default. Under the previous proposal (according to a circular dated August 4) — the implementation of which has been deferred — Sebi had mandated companies to make public any loan default within 24 hours of missing the repayment obligation.

Sources said Sebi is re-looking at some of the contentious issues in the proposed circular, which have been brought to its notice by market players, including industry bodies, banks and rating agencies.

Under the revised directives, Sebi may increase the “delta D” or date of default to 30 days and may give some additional time to companies to make disclosures. Besides, it could also make some provisions to state if the default was technical in nature and provide some exemptions on that part.

Sebi and the finance ministry are said to have received a slew of representations in the past one month which say Sebi’s directives were not practical in nature and need detailed analysis.

“There are two major issues with Sebi’s earlier circular. One, it was not practically possible for companies to make disclosure of default in one working day. Second, there was no consideration on the nature of loan default,” said a person with knowledge of the development. “Threshold cannot be absolute and has to be relative to the total liability of the company. Besides there should be proper demarcation on the nature of default,” said a senior official of an industry body.

Also, the circular was issued without floating a discussion paper inviting public feedback. Typically, Sebi issues a discussion paper before announcing any such policy changes. Banks, too, have expressed concerns over the impact of the circular on their core capital in case rating agencies decide to downgrade corporates making default disclosures.

“Disclosure of default on loans within 24 hours could put banks in a Catch 22 situation. Once a company makes such disclosure, credit rating agencies would have to step in and downgrade the company’s rating to default. Once credit rating agencies attribute the default rating, the risk attached to the loan goes up and it impacts the capital adequacy ratio of the bank. In other words, banks will be forced to arrange more capital for day-to-day business,” said a bank expert on the condition of anonymity.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services, said the purpose of the circular was to benefit banks, but it could have ended up increasing their burden as they would have been required to make provisions in case of downgrades by rating agencies.

According to the Reserve Bank of India norms, even though non-payment on the due date is deemed a default, banks classify the loan as a non-performing asset only after 90 days.

The default disclosure norm was hailed by many as a game- changing move that would have helped banks, which are saddled with bad loans of more than Rs 10 lakh crore.

S Raman, former Sebi whole-time member, in an interview to Business Standard last month before retiring from his post, had said the rule would “infuse discipline” and if introduced earlier would have helped prevent bad loans piling up.

“It is a game changer and the most effective measure taken by the regulator ever. So far it was 90 days and within the timeline. During this period, investors did not know what was happening in the company,” he had said.

“This could impact investment decisions. We have also provided several exemptions to banks while acquiring stressed assets, including exemption from takeover rules... the accumulation of NPAs is due to asymmetry in information. The investor should have real-time information,” he had said.

The purpose of the circularwas to benefit banks, but it could have ended up increasing their burden as they would have been required to make provisions in case of downgrades by rating agencies, experts say
The Business Standard, New Delhi, 04th October 2017

Comments

Popular posts from this blog

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...

After RBI rate cut, check latest home loan interest rates of top banks for loans above Rs 75 lakh

  The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points from 6.50% to 6.25% in its monetary policy review as announced on February 7, 2025. After the RBI repo rate cut, banks such as SBI, Canara Bank, PNB, and Union Bank among others have cut their repo linked lending rates. Most other banks are also expected to cut their lending rates in line with the RBI rate cut. After banks cut their lending rates, their home loan borrowers will have to pay less interest. Normally, when a lender cuts the lending rate, borrowers get two options: Either to go for a reduction in EMIs or reduce the tenure of the loan. The second option will help the borrowers clear their home loan outstanding faster. In case, the borrower goes for reduction in EMI then the lower lending rate of the lender would mean lower Equated Monthly Installment (EMI) for borrowers.   EMI is the amount you will pay on a specific date each month till the loan is repaid in full.A repo rate-linked home ...

GST collections rise 9.9% to exceed Rs 1.96 trillion in March 2025

  Gross GST collection in March grew 9.9 per cent to over Rs 1.96 lakh crore, government data showed on Tuesday. GST revenue from domestic transactions rose 8.8 per cent to Rs 1.49 lakh crore, while revenue from imported goods was higher 13.56 per cent to Rs 46,919 crore. Total refunds during March rose 41 per cent to Rs 19,615 crore. After adjusting refunds, net GST revenue stood at over Rs 1.76 lakh crore in March 2025, a 7.3 per cent growth over the year-ago period.       - Business Standard 02 th March, 2025