The market regulator's directive to report loan defaults beyond 30 days will help discipline markets and make corporates adhere to repayment timelines, Chief Economic Adviser Krishnamurthy Subramanian said.
This is an important piece of regulation, and in line with best practices that prevail across the world, Subramanian said in Delhi today.
The Securities and Exchange Board of India had, earlier this month, asked companies to disclose any default in loans from banks and other financial institutions if the payment is delayed beyond 30 days. This is a diluted version of the previous norm that required listed companies to disclose payment delays within a day.
Subramanian said that internationally, even if one of the covenants—conditions on loans—is violated, a technical default is triggered. And such defaults have to be informed to the exchanges as it's a material event, he said.
The regulation creates a deterrent effect for companies to stick to repayment timelines as they know that such information impacts their equity and debt prices, he said.
Subramanian also said that India needs to undertake more structural reforms to achieve its target of becoming a $5-trillion economy by 2024-25, and $10 trillion economy by 2030. “The current (economic) situation has really provided us an opportunity.”
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