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

The Economic Times - - Front Page - Our Bureau

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.

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