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Sebi Clears Ambiguity On Default Disclosure Requirement

Mumbai, November 21: In a major move, the Securities and Exchange Board of India (Sebi) has made it mandatory for all the listed corporates to disclose any default in loan or principal repayment within 24 hours after the 30 day period of the default. This provision was there but it was very ambiguous and did not include default on loans extended by the Banks and the financial institutions (FIs). 

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Makarand Joshi, Partner, MMJC and Associates, said, “Prior to today’s decision, there was ambiguity on the norms related to disclosure of financial default to the stock exchange. The new Sebi decision has put this uncertainty to rest, making it mandatory to inform the exchange beyond 30 days, making the potential risk about the company known to any investor as much as it is known to any insider in the company or the banker”.

So far, the banker has not been disclosing the client or company’s name in case of default. “But the subsequent rules on this subject that may follow would also make the banker’s name public in such default, making the process completely transparent,” hoped Joshi.

Sandeep Shah, Managing Partner, N A Shah Associates LLP, said, “The regulator had earlier come out with similar disclosure requirement in August 2017, where it had asked all the listed entities to disclose any default on interest or principal repayment within 24 hours of such defaults to the stock exchanges. The list of instruments on which such defaults occur included loans taken from the Banks and Financial Institutions (FIs), Foreign Currency Convertible Bonds (FCCBs), Bonds and Debentures issued by the company. However, it did not include default on loans taken from Banks and FIs”.

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The clarity is also required on the issue of its date of implementation. For example Sebi has said, this new regime will come into force from January 1, 2020. Now, if a company has defaulted on any interest or principal repayment say on December 1, should it disclose it on January 1, 2020 or the Sebi decision on default disclosures will be for all the defaults happening after January 1, 2020, said Shah. 

Lav Chaturvedi, ED & CEO, Reliance Securities said," Sebi decision on default disclosure will bring in more transparency in the market place and confidence among investors, especially to the retail investors, in taking some informed decisions."

Dr VK Vijaykumar, chief investment strategist while welcoming the Sebi move said, “It is aimed at greater disclosure and transparency and therefore is desirable. The 30 day default disclosure timeline is fair.”

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