Under pressure from bankers, SEBI may put default disclosure norms on backburner

The Securities and Exchange Board of India may not be coming out with a circular on loan default disclosure norms any time soon as mounting pressure from banks has made the markets regulator bury it for now, sources told Moneycontrol.

It is noteworthy that the SEBI circular, which was originally issued in August, was withdrawn only a day before it was supposed to have been implemented. The circular mandated corporates to reveal details of their loan default – either interest payment or principal repayment – within a day’s time of default.

Now, the circular might not see the light of day in the near future, say sources. Banks have been petitioning the Finance Ministry and SEBI over the last couple of months against such a circular as they believe loan default disclosures will increase their provisioning burden.

Banks have been reluctant to disclose their non-performing assets even in the past. But under Raghuram Rajan, the former RBI Governor, a more concerted effort was made to get banks to recognise their NPAs. The Asset Quality Review initiated by Rajan revealed that many of the banks hadn’t properly classified their loans. In fact, they had resorted to ever-greening of such accounts.

Currently, RBI norms mandate that banks make 25 percent of provisions for doubtful accounts in the first year, 40 percent from 1-3 years.

“SEBI means well when it says it wants to implement the default disclosure norms. However, at this point in time, banks don’t have enough money and this circular will increase their provisioning amount (money banks have to set aside for doubtful loans),” said an official from the Finance Ministry to Moneycontrol.

Seeking consensus, SEBI has asked banks to come out with a report on the matter. A source close to the development told Moneycontrol: “SEBI will implement this circular when banks complete their study and submit it to them. The regulator is worried about the minority shareholders in companies which have defaulted. However, banks are not comfortable with this circular.”

In its note SEBI recognised that corporates in India are heavily reliant on banks for loans and that many banks are struggling under a mounting pile of large loans which might turn into non-performing assets (NPAs).