Sebi widens default disclosure rule

The Securities and Exchange Board of India (Sebi) has made it compulsory for listed companies to make a disclosure to the stock exchanges if they default on any interest or principal payment obligation to banks.

At present, under Sebi’s Listing Obligations and Disclosure Requirements, companies have to make specific disclosures if there is a delay or default in payment of interest or principal on only debt securities such as non-convertible debentures, listed non-convertible redeemable preference shares or foreign currency convertible bonds.

There was no stipulation on companies to make disclosures with regard to loans taken from banks and financial institutions. That changes with the Friday announcement. Sebi has said companies will now have to make disclosures for any default on debt securities such as commercial paper or medium-term notes, on bank loans and on external commercial borrowing.

The disclosures will be have to be made within one working day from the date of the first default. Sebi has also asked listed entities to separately provide information to credit rating agencies on default, in a timely manner.

Bank loans worth at least Rs 12 lakh crore have at present been classified as non-performing assets (NPAs) or loans gone bad.

The Sebi note adds: “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 or NPAs. Some companies have also been taken up for initiation of insolvency and bankruptcy proceedings.”

Experts welcomed Sebi’s move, saying this would help investors to better understand a company’s financial health.

Securities and Exchange Board of India ( SEBI )