Home >market >stock-market-news >Loan defaults: Companies get a breather from Sebi

Mumbai: Just a day before listed companies would need to disclose their loan defaults, the market regulator has withdrawn its circular.

Late Friday night, Securities and Exchange Board of India (Sebi) issued a skeletal press release stating that the circular mandating disclosure on loan defaults is being deferred ‘until further notice’.

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.

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

It is unclear why the market regulator chose to withdraw the directive.

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 it defaulted on payment of interest, instalment obligations on debt securities and loans from banks and financial institutions and external commercial borrowings (ECBs).

“All the reasons support disclosure of loan defaults. It is a material information impacting stock prices, one set of investors tend to have loan default information and others don’t which leads to an information mis-match. One reason for withdrawal could be the impact of the disclosure on bank provisioning and capital requirement but even this reason does not justify withdrawal of the circular without a clarification," said Amit Tandon, chief executive of proxy advisory firm Institutional Investors Advisory Services (IiAS).

According to Sandeep Parekh, founder, Finsec Law Advisors, Sebi’s initial circular was not clear and needed recalibration. “There was a need to properly define the nature of default and period of default so that every minor issue of non payment of dues are not termed as default. To my mind this circular has been deferred to recalibrate and not withdrawn indefinitely," said Parekh.

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