Sebi seeks greater disclosure in debt public issues of NBFCs

To safeguard investors' interest, markets regulator Sebi today asked NBFCs to make greater disclosures before launching public offer of debt securities to raise funds.
The new disclosure norms, which would be applicable to draft offer documents to be filed on or after November 1, have been finalised on the basis of feedback from the market entities and to align the norms in line with the stipulations required by the Reserve Bank of India (RBI).
Consequently, the NBFCs would need to disclose "aggregated exposure to the top 20 borrowers with respect to the concentration of advances", as against the current requirement for top-ten borrowers.

Also, they would need to disclose details of all loans, which are overdue and classified as non-performing as per RBI guidelines. Currently, they need to disclose details of top ten loans, which are overdue and classified as NPAs.
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."

As a result, Sebi has decided that in case any of the borrowers of the NBFCs form part of the 'Group' as defined by RBI, then appropriate disclosures would need to be made in a prescribed format.

They will need to mention name of each such borrower, along with the amount of advances or exposures to such group entity borrower and also 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 with regards to industries or sectors to which borrowings have been made by NBFCs. The quantum and percentage of secured vis-a-vis unsecured borrowings made by NBFCs would also need to be mentioned.

Other details that need to be disclosed include any change in promoter's 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, classification of loans or advances given to associates, entities or person relating to the board, senior management, promoters, etc, would need to be disclosed, as is being disclosed currently.