Sebi may tighten default disclosure regulations for banks, listed firms

The Securities and Exchange Board of India (Sebi) is considering a proposal to force corporate borrowers to report all defaults above ₹5 crore if repayment is delayed by over 30 days, two people aware of the matter said.

The proposal marks a revival of the regulator’s August 4 order to disclose every default on the first day itself, which was withdrawn later. Sebi also plans to ask banks to disclose frauds they have reported to investigative agencies, the people cited above said on condition of anonymity. The Sebi board is expected to take up the proposals at its meeting on March 28.

“The earlier criticism was the default disclosure did not consider materiality. So, this draft would consider the threshold as set by the Reserve Bank of India (RBI),” one of the two people cited above said. On February 13, RBI had asked banks to report defaults on loans above ₹5 crore every week.

The finance ministry last week sought comments from Sebi on the default disclosure norms, Bloomberg first reported on February 23.

“When the default disclosure framework is implemented, whenever it happens, it will create some volatility for a few quarters as borrowers adjust to it and investors and rating agencies assess the changes on rating following the disclosures. As on date, the financial discipline of many borrowers towards bank borrowings and debt capital borrowings are at some variance. Once the system is stabilised, we may see banks moving towards a more efficient risk-based pricing than currently,” said Karthik Srinivasan, group head of financial sector ratings at ICRA Ltd.

Alekh Archana contributed to the story.

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