A Securities and Exchange Board of India (Sebi) proposal to make listed firms disclose defaults on their loans within a day of it happening is stuck in a turf war between the central bank and the markets regulator, according to two people with direct knowledge of the matter.

The Reserve Bank of India (RBI) has reservations about the Sebi proposal as it considers banks to be the biggest stakeholders in default data and believes such data is not for public consumption, these people said on condition of anonymity.

Sebi had initially released a circular on 4 August proposing default disclosures within a day, only to withdraw it on 30 September, just a day before it was to become operational. The circular had sought to bring bank loan default disclosure on par with delay in repayments on other kinds of debt instruments such as bonds, as required by Sebi’s Listing Obligation and Disclosure Requirement regulations.

The market regulator’s board had discussed the implementation of this proposal in its 28 December board meeting, but could not reach a conclusion, Sebi chairman Ajay Tyagi said after that meeting.

“While Sebi is seeking disclosures exerting its powers on listed entities, the Reserve Bank of India considers the debt to have severe impact on its regulated entities, ie, banks. They are the biggest stakeholders," said the first of the two people cited earlier. “Sebi’s thought process is to remove information arbitrage."

Spokespersons for Sebi and RBI did not reply to emails seeking comment.

RBI’s objections centres on the fact that loan default data is not for public consumption, said the second of the two people cited earlier.

“The data on loan default should be for regulatory purposes only and not for public consumption. All defaults cannot be attributed to malfeasance. Some of them could be because of the business cycles. Look at the Supreme Court case on defaulters, for example," said the second person.

In March 2017, RBI had submitted a list of big loan default cases (involving more than Rs500 crore each) to the Supreme Court in a sealed envelope. The list was given in response to a public interest litigation on rising bad loans in the economy. RBI declined to make the list public, citing economic interest, fiduciary responsibility and commercial confidence. The apex court is yet to decide whether the information can be made public or not.

According to Sandeep Parekh, managing partner at Finsec Law Advisors, the implementation of the Sebi circular requires a calibrated approach from both the regulators.

“Till now the omerta code that existed between both borrower and lender to suppress information will be challenged by the circular (when implemented)," said Parekh.

“RBI has realized that light shown on 10 years of opacity can have systemic issues and is therefore seeking a calibrated response. Similarly, Sebi itself may need to calibrate both nature of credit—not every operational delay is a default—and period of default—immediately may be too soon—and start with a consensus number. It can then tighten the screws over the next few years," he added.