Securities Exchange and Board of India (SEBI), Markets regulator announced new norms to make it mandatory for companies to provide certain details to credit rating agencies.
The certain details that is to disclose information on delayed loan repayments and possible defaults by their borrowers to credit rating agencies, thus making it easier for these agencies to take rating actions.
These new rules for corporates being rated comes on the face of resistance from banks in disclosing information about delayed loan repayments and possible defaults by their borrowers, citing ‘client confidentiality’ clause.
Last September after Infrastructure Leasing & Financial Services (IL&FS) loan default, there have been several cases of loan defaults and delayed payments by large corporates that inconvenienced a large number of mutual fund investors.
In most of these cases rating agencies were late in flagging financial problems in corporates they rated which in turn led mutual funds to get stuck with bonds issued by those corporate.
The limits for mutual funds to invest in unlisted debt securities are also reduced by the regulator’s board while its chairman said that the regulator was examining if mutual funds could be allowed to join inter-creditor groups, currently consisting of banks and other lenders, in those cases where corporates face liquidity stress.
Along with the reduction of limit, the rules for registration of foreign investors by categorising them into just two from three now and allowed easier transfer of shares by these entities in case of unlisted companies or stocks which are illiquid or suspended from trading.
The SEBI chairman also hinted at a delay in implementation of the government proposal to hike minimum public shareholding limit to 35% from the current level of 25%.
Hence, to allow faster registration of foreign portfolio investors (FPIs), the documentation requirements for KYC are simplified for these foreign investors. These regulations have been redrafted based on the recommendation of a committee set up by the regulator that was headed by H R Khan, a former deputy governor of RBI.
Also, the entities set up in International Financial Services Centres (IFSCs), like the GIFT City in Gujrat would now be considered as FPIs.
The regulator also allowed offshore funds floated by mutual fund houses to register as FPIs. It also said that central banks which are not members of the Bank for International Settlements, can now register as FPIs.
SEBI chairman said that “liquidity needs to increase in terms of better price discovery more trading and dispersed shareholding, among others. “There are certain issues that need to be further examined.
We will need to look at global regulations whether it is mandated beyond 25% anywhere. What is the right level to be mandated… What will be the short term and long term implications for the companies and for the market,”