The banking regulator’s reluctance to do so stems from the prospect of the data leaking as it becomes known to a wider set of people, hurting the business prospects of the companies involved, they said. Sebi has sent at least two official requests to RBI seeking such details as evidence for ongoing investigations in the past year.
These include a disclosure lapse by a highly indebted company, a corporate governance violation at a leading private bank and a frontrunning case in another private bank. The development comes as the Central Information Commission (CIC) has sent a show-cause notice to the RBI governor for not providing a list of big defaulters despite the Supreme Court’s instructions. RBI and Sebi didn’t respond to queries.
‘Smooth Exchange of Info’
In one of the Sebi cases, a company allegedly didn’t disclose that it had defaulted on a loan repayment.In another, there may have been front running by some brokers before NPA numbers of a private lender were announced. In this case, it is suspected that some bank insiders had shared the information with the brokers. The two regulators normally share a wide range of information since their jurisdictions overlap in several areas such as the debt market, foreign portfolio Investors (FPIs) and oversight of listed banks.
“The information exchange works smoothly and Sebi gets data within two weeks of sending a request to RBI,” said one of the two people cited above. “However, these particular requests of Sebi were turned down by RBI due to the sensitive nature of the data.” RBI is learnt to have told Sebi that the data, if shared, could potentially impact the business of several companies that feature in the list.
All the data Sebi gets from other regulators is documented and filed along with investigation reports pertaining to cases. At subsequent stages, Sebi is obliged to share the evidence with the accused, increasing the chances of the information leaking. “A potential NPA or a loan becoming NPA might not always mean the end of business for the defaulting company,” said the second person cited above. “Hence, disclosing the data could potentially affect the ability of the company to carry out regular business.”
NPAs are considered unpublished price sensitive information (UPSI) in cases pertaining to insider trading and front running. Further, if the indebted company is listed, it has the responsibility to disclose this to the stock exchanges. In the past two years, several banks have seen sharp stock movements ahead of earnings announcements amid heavy speculation on NPA numbers. The market regulator is already probing the leak of such numbers through social media platforms.
The outcome of the ongoing tussle between the RBI and the CIC could decide the fate of Sebi’s requests, said one of the people cited above. In 2015, the Supreme Court asked RBI to comply with an order passed by CIC asking the regulator to disclose the loan default data. “If CIC gets a positive verdict in the matter, RBI will be forced to share the data with Sebi as well. If the case goes in favour of RBI, Sebi will have to look for other supporting evidences,” the person said.
The development reflects the absence of a common information exchange platform for Indian regulators. Currently, information is given — and sometimes not, as in this instance — if it’s asked for and the process sometimes takes several months, delaying regulatory action. The issue has been raised at several forums and the central government is said to be exploring the establishment of such a platform.