Corporate defaults, restructured loans: No reason to keep details a secret

The ruling by the CIC (Central Information Commission) that banks have to disclose the list of defaulters is welcome. The Reserve Bank of India (RBI) had refused to furnish the information citing that it would affect the economic interests of India.

However, the public is better off with information on defaulters being disclosed by the RBI, which will allow them to take more informed decisions from investing to taking up employment with a company.

The parties involved are public-sector banks and industrialists. Public-sector banks have been restructuring loans given to industrialists and this restructuring is not in public domain.

[caption id=“attachment_133408” align=“alignleft” width=“380” caption=“Public disclosures of loan restructuring should be made mandatory for any listed entity, whether it is banks or industrial houses. Reuters”]  [/caption]

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The public is an interested party in restructuring loans as it has exposure to banks in the form of savings accounts, fixed deposits, as well as investments in listed shares of the banks.The public, as depositor and shareholder, has a right to know what is happening in banks.

The banks, too, reveal such information to the RBI and to research analysts who track bank stocks.The RBI as regulator should be privy to such information, but banks should not be selective in revealing such information to analysts as such information is used by analysts to issue ‘buy’ or ‘sell’ reports on bank stocks.

In such cases, the public is clearly at a disadvantage as it does not have the information that analysts have and, in the process, ends up taking wrong investment decisions.

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The rule should apply to companies too

Industrialists, if they have listed companies, should also disclose the restructuring of any loans. The public, again, has an interest in knowing the state of the balance sheets of listed companies as they could either be seeking employment in these companies or have equity investments in such companies.

Again, analysts are privy to such information as they track these companies and interact with the management. More often than not, it’s the public that is left in a pickle when the stock price becomes volatile after analysts issues reports on these companies.

Public disclosures of loan restructuring should be made mandatory for any listed entity, whether it is banks or industrial houses.

Indeed, the Securities and Exchange Board of India (Sebi) should make such reporting compulsory as it protects investor interest. In recent times, there have been too many cases where share prices of companies with sizeable debt have fallen with a thud, leaving more knowledgeable parties richer because of that knowledge, while leaving the public to hold the baby.

Transparency is becoming a key issue now with huge payouts borne by taxpayers on bailouts of banks and governments. Informationthat should ideally have been in public domain has been used by a few to make money in the markets.

Regulators should ensure a level-playing field for stakeholders who depend on publicly available information. Public information that becomes private destroys public confidence in the functioning of markets.

Arjun Parthasarathy is the editor of www.investorsareidiots.com, a website for investors.