Disclose defaults within 24 hours: Sebi may mandate this from April 1

The market regulator Sebi may mandate all listed entities to start disclosing the first instance of a default to a bank or financial institution within one working day, ET Now learns from reliable sources.


This is one of the big items for discussion for the Sebi board meet scheduled for Thursday. Sebi is proposing to tighten the noose around defaulters with such mandatory disclosures coming into effect from April 1, 2018.


Interestingly, this is not the first time Sebi is trying to enforce prompt disclosures on defaults by listed entities. It had tried to put this mechanism in place from October 1 of this year, but it was the banking regulator RBI and the Centre that had requested Sebi to set aside its circular. RBI, according to sources, had said such prompt disclosures could cost the banking industry an additional Rs 26,000 crore.

Sources tell ET Now that Sebi is convinced such prompt disclosures on bank defaults are crucial for market participants to make proper investment decisions. This as a bank default is seen as the first indicator of the deterioration of a company's financial health. The intent is also to have an early warning system in place to identify prospective NPAs.

Sebi is believed to have studied the instance of a "large Indian corporate" delaying payments to banks for 7-8 months, which the public only got to know about much later. And that too when a press conference was held to announce that the corporate was undergoing a restructuring exercise. The market watchdog fears recurrence of such incidents would erode investors trust.

Information asymmetry of such price sensitive information is also believed to have alarmed the market watchdog. For instance, besides the corporates and financial institutions in question, even auditors and credit rating agencies are likely to be in the knowhow of such price sensitive information. However, other important market participants like retail investors and fund managers of mutual funds maybe in the dark. This is what Sebi is hoping to correct at tomorrow's board meeting.