Sebi Mandates Companies to Disclose Default Details to Bourses Within a Day
Move to keep investors informed as insolvency actions can be started on next day of default
Mumbai: The Securities and Exchange Board of India (Sebi) has mandated listed companies to inform stock exchanges if they default on interest or loan repayments to banks and financial institutions. The disclosure has to be made within one working day of the default, the regulator said on Friday.
Sebi rules currently require the disclosure of material events and information by listed entities to stock exchanges. Companies have to make specific disclosures in in- stances such as delays and defaults in the payment of interest and principal on debt securities, listed non-convertible debentures, redeemable preference shares and foreign currency convertible bonds.
“Similar disclosures are presently not stipulated with respect to loans from banks and financial institutions,” Sebi said. ET had re- ported that Sebi was planning such a move on July 26.
The government and the central bank have renewed the push to resolve the bad loan burden of banks, getting lenders to kick off insolvency proceedings against big defaulters. Hence the need to keep investors informed about any missed payments as soon as they occur.
“In order to address this critical gap in the availability of information to investors, listed entities shall comply with the requirements,” Sebi said. Under the new Insolvency and Bankruptcy Code (IBC), if a borrower is unable to pay on the due date, creditors can initiate the insolvency resolution process on the next day. However, as per Reserve Bank of India (RBI) norms, even though nonpayment on the due date is deemed a default, banks classify the loan as a nonperforming asset (NPA) only after 90 days.
Bankers said the Sebi proposal is significant in the context of the fact that many borrowers make payments just a few days before the 90-day deadline to retain standard asset classification on their loans. An NPA classification limits a borrower’s ability to raise further capital and is also seen as a reputation risk.