Sebi seeks greater NBFC disclosure

Says exposure to top 20 borrowers will have to be disclosed ahead of public offer of debt securities

The Securities and Exchange Board of India (Sebi) has asked non-banking financial companies (NBFCs) to issue detailed disclosures while launching a public offer of debt securities to raise funds.

The norms, which will be applicable to draft offer documents to be filed on or after November 1, have been finalised on the basis of feedback from market entities. Sebi seeks to align the norms in line with the stipulations required by the Reserve Bank of India (RBI).

The NBFCs would now need to disclose "aggregated exposure to the top 20 borrowers with respect to the concentration of advances", against the current requirement for top 10 borrowers. They would also need to disclose the details of loans, which are overdue and classified as non-performing according to RBI guidelines.

Sebi further said, "NBFCs are frequent issuers of debt securities and amongst other things, generally also utilise the issue proceeds for onward lending. Thus, there may be a possibility that such onward lending may be made to such persons, which are connected to the NBFCs or are a part of its 'group'. Given this, it is imperative that adequate disclosures are provided for, to keep the investors informed with regards to such onward lending to 'Group' entities."

If any of the borrowers of the NBFCs form part of the 'group' as defined by RBI, appropriate disclosures would need to be made in a prescribed format. They will need to mention the name of all such borrowers, the amount of advances, and the percentage of total assets under management.

Further, in order to allow investors to better assess the NBFC issue, it has been decided that some additional disclosures would need to be made in the offer documents.

These disclosures would include a portfolio summary on the sectors to which the NBFCs have lent. The quantum and percentage of secured and unsecured borrowings would also need to be mentioned.

The other details that need to be disclosed include any change in promoters' holdings in NBFCs during the last financial year beyond a particular threshold. At present, RBI has prescribed such a threshold level at 26 per cent. The same threshold would be applicable or as may be prescribed by RBI from time to time.

Sebi said the NBFCs would also need to state a lending policy, containing overview of origination, risk management, monitoring and collections. Besides, the classification of loans or advances given to associates, entities or persons related to the board, senior management, or promoters etc, would need to be disclosed.