SEBI tightens disclosure norms on loan defaults, reduces time for rights issue to bolster capital markets

  • Sebi has made it compulsory for the top 1,000 listed companies to prepare annual business responsibility reports covering their activities related to environment and stakeholder relationships

  • Under the new disclosure norms, listed companies would have to report within 24 hours full facts of any loan default that is more than 30 days

  • The 24-hour deadline would be applicable for any failure of repayment of principal and interest amount beyond 30 days

Mumbai: In significant steps to bolster capital markets, Sebi on 20 November decided to put in place stricter disclosure norms for loan defaults, ease time taken for rights issue to 31 days and hike minimum investment limit under portfolio management scheme to Rs 50 lakh.

Besides, the regulator has made it compulsory for the top 1,000 listed companies to prepare annual business responsibility reports covering their activities related to environment and stakeholder relationships.

Under the new disclosure norms, listed companies would have to report within 24 hours full facts of any loan default that is more than 30 days. The 24-hour deadline would be applicable for any failure of repayment of principal and interest amount beyond 30 days.

"What is being said is that if ...there is default on interest or principal and that continues beyond 30 days. So after the 30th day within 24 hours by listed companies, it will be disclosed to the stock exchanges. The philosophy is that more and more information should be in the public domain which guides investors and other stakeholders as to what is happening. It is an attempt to go towards openness and better disclosures," Sebi Chairman Ajay Tyagi said.

The new disclosure norms, to be effective from 1 January 2020, would help address the gaps in the availability of information with respect to defaults.

 SEBI tightens disclosure norms on loan defaults, reduces time for rights issue to bolster capital markets

File photo of SEBI chairman Ajay Tyagi. Reuters image.

One-day default disclosure was not agreed to by the board and the scheme of 30 days is "implementable", he said while briefing reporters after the board meeting here.

In recent times, there have been several cases of huge loan defaults by corporates, including in cases like Infrastructure Leasing & Financial Services Ltd (IL&FS). In many instances, disclosures about defaults were delayed.

The watchdog would also be reducing the timeline for a rights issue to 31 days from the current 55 as part of efforts to make the process more efficient.

Further, ASBA (Applications Supported by Blocked Amount) facility would be the mandatory mode of payment for all investors applying to shares on rights basis.

Dematerialised rights entitlements and trading of rights entitlements on stock exchange platform would also be introduced, Sebi said in a release.

In a move aimed to keep retail investors away from Portfolio Management Schemes (PMS), the watchdog has decided to raise the minimum investment amount of clients for such schemes to Rs 50 lakh from the earlier Rs 25 lakh.

Besides, the net worth for portfolio managers would be hiked to Rs 5 crore from Rs 2 crore and existing portfolio managers would have to meet the enhanced requirement within 36 months.

PMS offers investors a range of specialised investment strategies to capitalise on opportunities in the market and made suitable to the needs of individual clients.

Continuing efforts to boost corporate governance norms, the regulator would make it mandatory for the top 1,000 listed companies to prepare annual business responsibility report. Currently, such reports are mandatory only for top 500-listed entities based on market capitalisation on the BSE and NSE.

The key areas required to be reported by the entities include environment, social, governance and stakeholder relationships.

Regarding revised norms for PMS, Dhaval Kapadia, who is Director, Portfolio Specialist at Morningstar Investment Advisors India, said that globally regulators typically don't follow the practice of defining investment minimums for such products. Instead they typically define the type of investors that can invest into such products which are referred to as accredited or qualified investors with certain minimum net worth and other criteria, he added.

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Updated Date: Nov 21, 2019 09:14:55 IST