Pleading guilty

Real-time disclosures of delinquencies would affect the goodwill of borrowers and lenders. A framework that mandates daily compliance reporting on defaults doesn't go well with the concept of an inefficient market. The regulations must be enforced on a case-basis. Credit history of borrowers, overall lending discipline by creditors, amount at stake, need for the immediate disclosure, possibility of awarding a grace period and impact of the default are aspects that ought to be considered. Although the initiative can promote market transparency, it has a shorter horizon and is reactive in nature. The non-performing asset situation can be be prevented in the longer-run by restricting the market entry of dubious promoters in the first place and enforcing an absolute lien over the assets of a firm’s promoters/guarantors in letter and spirit.

Determining credit-worthiness of a borrowers and micro-monitoring of the funds post-disbursal are a pre-requisite. A relatively premature disclosure of the financial position and/or stressed assets can impact the capital market sentiment, induce price volatility and affect the market capitalization of the individual stock. Moreover, its unlikely for a defaulter to acknowledge a wilful default or exhibit credibility by proactively complying with a regulation of a self-implicating nature. Girish Lalwani

Delhi