(LiveMint)
The capital market regulator has tightened disclosure norms for reporting loan defaults, a move that will help investors draw an informed conclusion about a firm’s financial health and prevent a sudden erosion of their wealth when such an event is discovered—as was the case in recent instances.
Any default in repayment of principal or interest to lenders by listed companies which continues beyond 30 days from the pre-agreed payment date will have to be disclosed to shareholders within 24 hours of such an event, the Securities and Exchange Board of India (Sebi) said in a statement after a board meeting on Wednesday. The rule will take effect on 1 January.
“Sebi’s move will address the information asymmetry currently existing in the public markets to a fair extent. It will be less drastic than the previous attempt which triggered disclosure of default of one rupee for one day to the present one of 30 days,” said Sandeep Parekh, managing partner, Finsec Law Advisors. “This will also minimize a false alarm where a technical default occurs because of some minor payment problem.”
