SEBI cracks whip on defaulters

SEBI and RBI ,India’s financial sector watchdogs  took a grim view of the stress in the banking sector on account of loan defaults
, with the one dealing with equity markets announcing on Saturday a ban on wilful perpetrators from raising public money.

Loan defaulters  including individuals and the companies as well as their promoters and directors,would be debarred from setting up or being associated with the market entities like mutual funds and brokerage firms

“All wilful loan defaulters will stand disqualified from the board positions as listed companies under the new rules,” Securities and Exchange Board of India (SEBI) Chairman U.K. Sinha said at a press conference here after the watchdog’s board meeting.

Sinha also said tainted people will neither be allowed to take over the management control of other listed companies, nor permitted to float mutual funds, debt or equity securities, or similar money-raising instruments.

In this regard, he said, the criteria for determining who constitutes a “fit and proper” person in the regulations was also being amended. The bar on wilful defaulters is also on floating instruments like non-convertible debentures and redeemable preference shares.

During the board meeting, which was also addressed by Finance Minister Arun Jaitley, officials were asked to remain alert on the supervision of the markets, particularly in the wake of global developments.
Jaitley, announced a multi-pronged clampdown on “wilful loan defaulters”, by barring them from raising public funds, as also from taking control of listed firms and holding board positions — a move that would disqualify beleaguered Mallya from various posts.

The issue of loan defaulters at the watchdog’s meeting followed the matter being raised at the board of governors of the Reserve Bank of India (RBI) meeting here with the top brass of the finance ministry.

One of the main topics of discussion at the RBI meeting was the issue of non-performing assets of banks — which primarily concern loan defaults and wilful defaults by industry.

“Non-performing assets are of two types,” Jaitley said after the RBI meeting, explaining that one is created as the result of a slowdown that can be recovered once the economy turns around, while the other is on account of individual misdemeanours.

“We don’t want to create a situation by overstating these incidents that, in turn, will hamper activities,” he said, alluding that banks should not be deterred from bona fide fresh lending. “But the rising levels of NPAs is a matter of concern for all of us.”

RBI Governor Raghuram Rajan said a due process will be followed in defining wilful defaulters.

Rajan said there is a need to be “careful” going forward, so that criminal actions are penalised, but there is no “broad fishing expedition which then becomes a reason for banks to get worried about making loans which then hamper the recovery and hamper the absolutely important infrastructure investment that have to take place”. “So as a country, as a system, we have to draw that balance very carefully and we are hopeful that we can manage that,” he said.

As per recent RBI estimates, the total exposure of commercial banks in terms of gross NPAs, the rescheduled loans and write-offs was 14.1 percent of deposits that works out to around Rs.9,455 billion (around Rs.9.5 lakh crore).

The government is also facing flak following the unexpected exit of industrialist Vijay Mallya from the country, even as a consortium of 17 banks led by the State Bank of India, were seeking repayment of around Rs.9,000 crore that he has borrowed from them.

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