Mumbai, November 13, 2017

Sebi says banks needed clarity on the types of defaults that would require disclosure, depending on the kind of loan availed by companies

The Securities and Exchange Board of India (Sebi) on Monday said that it had withdrawn a circular requiring default disclosures by companies, acting on the advice of banks.

The market regulator said banks needed clarity on the types of defaults that would require disclosure, depending on the kind of loan availed by companies.

The circular issued by the markets regulator in August was withdrawn on 30 September, just a day before the notification was to come into force. On 4 August, the market regulator had issued a circular stating that listed companies would need to disclose loan defaults within a day, starting 1 October.

“Banks need further time to examine and see... because there are various types of debt they give. There is term loan, working capital loan etc so they just need some more time to examine it,” said Sebi chairman Ajay Tyagi on the sidelines of an event organised by National e-governance Services Ltd.

Mint had reported on 2 October that the regulator will issue a new circular on the disclosure norms which will address some concerns raised by banks and companies. Also, the notification has been deferred and not scrapped.

Currently, Sebi norms mandate disclosures on delay or default in payment of interest or principal on debt securities, including listed non-convertible debentures, listed non-convertible redeemable preference shares and foreign currency convertible bonds. Similar disclosures are not stipulated with regard to loans from banks and financial institutions. In order to bridge this gap in the availability of information to investors, Sebi had asked listed entities to inform exchanges in case they defaulted on payment of interest, instalment obligations on debt securities and loans from banks and financial institutions and external commercial borrowings.

The move assumes significance considering the Rs10 trillion of stressed assets in the banking system. The disclosures of loan defaults would have helped investors make informed decisions about listed companies.

A public sector bank official, on condition of anonymity, said immediate default disclosure would hurt small and medium enterprises as often they face delays in receiving payments from vendors.