Defaults by listed firms won’t remain secret from October 1, 2017. The Securities and Exchange Board of India (Sebi) has asked listed companies to disclose details on defaults of loan payment from banks and other financial intuitions to the public within one working day. The Sebi directive to disclose loan defaults runs contrary to the position of banking regulator, Reserve Bank of India, which has been refusing to name the defaulters.
The Sebi directive would come into force from October 1. “This is to enable listed companies to put appropriate systems in place for prompt submission of disclosures as stipulated in the circular,” Sebi said.
“Corporates in India are even today primarily reliant on loans from the banking sector. Many banks are presently under considerable stress on account of large loans to the corporate sector turning into stressed assets, non-performing assets (NPAs). Some firms have also been taken up for initiation of insolvency and bankruptcy proceedings,” Sebi said.
Currently, investors and public are in the dark about defaults by companies and they realise it only when the valuations go down. Some of the top defaulters are now listed on the stock exchanges. The RBI has refused to make public the list of loan defaulters with public banks despite a Supreme Court order to make this information public.
The disclosures should be made to the bourses when the entity has defaulted in payment of interest/instalment obligations on debt securities (including commercial paper), Medium Term Notes (MTNs), foreign currency convertible bonds (FCCBs), loans from banks and financial institutions, external commercial borrowings (ECBs), Sebi said.
The companies would have to inform stock exchanges about date of default as well as date of making such disclosure, name of the lender, number of investors in the security as on date of default, details of the obligation, current default amount and gross principal amount on which the default has occurred. “The entities shall make disclosures within one working day from the date of default at the first instance of default in a specified format,” Sebi said.
The regulator asked firms to make disclosure about debt securities and loans from banks and financial institutions if there is any outstanding amount under default as on the last date of any quarter within seven days from the end of such period. Listed entities would also separately provide information pertaining to defaults to the concerned credit rating agencies in a timely manner and as may be specified by Sebi from time to time.
The Sebi had recently asked listed banks to make disclosures if provisioning and NPAs assessed by the RBI exceeded 15 per cent of published financials. Sebi had said that such disclosures should be made along with the annual financial results filed immediately following communication of such divergence by the RBI to the bank. The move is aimed at helping banks to recognise their stressed assets as non-performing more uniformly.
The RBI’s Internal Advisory Committee (IAC) had identified 12 large accounts of corporate borrowers who owe over Rs 5,000 crore each and involving an overall amount of over Rs 2,00,000 crore for insolvency proceedings under the newly enacted Insolvency and Bankruptcy Code 2016 (IBC). However, the central bank did not reveal the names of the 12 large defaulters.