How Board Members of Defaulted companies Oversaw Shareholder Value Erosion

Abstract

SEBI redeemed itself on 4th August, 2017. This it did by issuing a circular which mandated listed companies to report ‘default’ in servicing bank loan, within 24 hours of the default. The circular which will become effective on 1st October 2017, a day before Gandhi Jayanti, would go a long way in enhancing the level, quality and urgency in disclosures to investors in Indian markets. As such, the markets have to make do with much inferior quality corporate disclosure than is the case is more developed markets. The circular unambiguously defines default as ‘non-payment of interest or principal amount in full on the pre-agreed date”. That the globally accepted definition of default would come from market regulator, and not the banking regulator, is a thought provoking matter in itself. This mandate from SEBI will go a long way in reducing the likelihood of another corporate credit blow-up, on the lines India is currently experiencing. However, this had come in 2011, it might have prevented at least INR 4 lakh crore shareholder value erosion which happened in the following six years. While SEBI may have redeemed itself the same cannot be said about the Board Members of NPA companies. The Board particularly the independent member, of over 500 listed and defaulted companies, have still to answer to their shareholders whether they have been doing their job at all or not.