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POLICY WATCH : NORMS ON LOAN DEFAULT


1. INTRODUCTION


• SEBI (Securities and Exchange Board of India ) has tightened the norms for Listed Companies on disclosure of loan defaults.

• Now, in case of default and repayment of principle or interest on loans beyond 30 days listed companies will have to disclose the fact of such a default within 24 hours.

• In case of unlisted entities such as Non-Convertible Debentures (NCDs) and Non-Convertible Redeemable Preference Shares (NCRPS), the disclosure shall be made within 24 hours from the occurrence of the default. SEBI has said it would soon issue uniform formats for making such disclosures.

• The SEBI also entirely revamped the framework for portfolios management services and shortened the time period taken for completion of rights issues

• The board also extended the business responsibility reporting to top 1000 companies instead of 500 at present.


2. INSIGHTS


• The decision are in line with Reserve Bank of India guidelines which stated that “ companies has to examine weather its portfolio need some resolution or what further it needs to do for repayment.

• This will help investors to make informed and detailed choice regarding financial health of the companies.

• It seeks to bring greater amount of transparency in the market. And benefit both existence and potential investors.

• Due to such steps India as a country will improve its image in the global markets. Specifically in the eyes of potential investors not only from bigger nations like US but also from smaller European countries and elsewhere.

• Greater transparency would also pull potential investors within the country in rural areas who are afraid of investing in share or equity markets due to its opaque nature. They rather chose to simply put their savings in banks.

• There have been many cases of loan defaults by corporates, cases like Infrastructure Leasing & Financial Services Ltd (IL&FS). In many cases, the disclosure about loan defaults were very late and share prices fell sharply.

• The SEBI has also defined "default" as non-payment of interest or principal amount in full on the date when the debt is due and payable which will be a pre mutually decided date.

• It will also help Credit rating agencies to arrive at a more accurate conclusion due to available information.

• SEBI said the objective is to "get more openness to help investors".

• New norms will be effective from January 1st .

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