Scope of evergreening loans less under new Sebi norms: S Raman

We had already established the Chandrashekhar committee which was to go into rationalising the entry points for different classes of investors into one. So we decided to amalgamate the FII sub-accounts. In the first meeting of the committee, we discussed the problems that FIIs and FPIs were facing in opening accounts. There were three problems. First, Sebi’s registration process was slow. Second, the process demanded photographs of FIIs for KYC. There was hesitation among people to give photographs. Third, how to simplify the KYC. Since there were 30 members in the committee, we made six sub-committees and asked them to come back in a month with recommendations. We managed to wrap up the committee in four sittings.

At that time I raised a fundamentally different question, which I am very proud of. I said to the FIIs that you feel we are slow, wonderful, but will you be able to do it fast if I delegate the authority to you. They said yes and so we created Designated Depository Participant (DDP). Initially there were 18 DDPs which included all the famous custodian banks and investment banks. We told the FIIS and FPIs that they need not come to Sebi for registration. We delegated that responsibility to 18 people, spread all over the world. A regulator was delegated with the basic responsibility of registration. It was quite radical. It is one reform which was lauded universally. So coming from a commercial bank, I could think of something totally different and it helped me discharge my regulatory duties better.

Do you think the new Sebi norm on disclosure of defaults by listed companies will lead to another form of evergreening. And will you be able to plug it?
You can’t discount innovation but the scope will be much lesser. If the world does not know till 90 days that it is NPA then there is a possibility for the bank to offload it to somebody else or for a borrower who is being pressed by the bank to go to another banks and tell a different story. But now with the new disclosure norm the behaviour will change. The bank will first go to stock exchanges and see if there is any default disclosure. And if there is a disclosure, he cannot be fooled. The information will be there for everyone in real time. And for banks who have been transferring assets, it will not be possible because the default will be known the minute it is disclosed under the Sebi rules. So evergreening will not be easy.

The other thing is divergence of accounts. Should not regulators come harder on such divergence? From a regulatory point of view can that be done?
The divergence issue has been brought to public domain recently by the RBI. Being the regulator, it is RBI who essentially decides. So they requested us to say that if there is more than 15 per cent deviation, in terms of quantum of the NPAs, they (banks) will have to make a disclosure to the stock exchanges. So we said yes. On the bank side there will be a discipline and if there is a difference it will again come into public domain. So these two measures (disclosure by listed firms on defaults and disclosure on divergence by banks) together will change behaviour of banks and the borrowers.

Now that you are a regulator, how do you see governance at listed banks?
As far as governance of banks is concerned, the RBI had appointed the PJ Nayak committee and that was a good starting point. A lot of recommendations have been given there. The problem with public banks is the quality of reports. In public and private sector sometimes you have all the great names, still it may fail like Satyam. Merely having big names is no insurance against bad behaviour. You should have knowledgeable people. In fact, PJ Nayak committee recommended that there should be a distance between the government and the bank board and the selection of board members. That’s why the committee thought of Banking Boards Bureau. The government should not be involved directly in the selection process. It should also reduce its stake to below 51 per cent so that that it is only an investor and not an owner.

What about the quality of governance at listed companies? Many are skeptical of the quality of governance, not just in audit and integrity of accounts but also in terms of behaviour. Where do you draw the line between an influential shareholder and a promoter?
I don’t want to go into individual cases but it leaves a lot to be desired. As a regulator, in individual matters, we have to be careful about when to enter. We keep a close watch and come into the picture only if there is a violation of Sebi norms.

We generally don’t rush, which is a wise policy. When there is a lapse, we come down heavily. In corporate governance there are many issues like related-party transactions and Sebi has been tightening the rules.

In fact, India is rated pretty high in the way minority shareholders are treated. Many Sebi regulations are tighter than the Companies Act.

Is Sebi investigating certain deals of Infosys?
Sebi is not investigating any particular deal. We have asked for some information from the company on the basis of what the whistleblower has said. We have asked for the company’s comments. Nothing has come to fruition but if we find something wrong, we will take action.

Sebi was keeping a close watch on the boardroom battle in the Tata Group too.

There were many elements there. In my understanding, it was an ownership battle more than a corporate governance battle.

So was there any violation by the listed Tata firms?
We have not come to big conclusions that there was much violation. People did say that independent directors were treated badly but how can one be an independent director for 37 years and be independent.

Credit rating agencies have been behind the curve. How is that being addressed?
See again, credit rating agencies’ problem of being behind the curve will be addressed with the August 4 circular on disclosure of defaults by listed companies. The rating agencies now need not rely on the companies alone for getting information.