The ruling by the CIC (Central Information Commission) on banks disclosing list of defaulters is welcome. The RBI had refused to furnish the information citing that it would affect the economic interest of India. The public is now better off with information on defaulters being disclosed by the RBI and they can take more informed decisions from investing to taking up employment with a company.
The parties involved are public sector banks and industrialists. Public sector banks have been restructuring loans given to industrialists (read throw good money after bad) and this restructuring of loans is not in the public domain. The public is an interested party in banks restructuring loans as it has exposure to banks in the form of savings accounts, fixed deposits and in the form of investment in listed equity of the banks. The public as a depositor and a shareholder have a right to know about what’s happening in the banks.
The banks too reveal such information to the RBI and to research analysts who track the bank stocks. The RBI as the regulator should be privy to such information but banks should not be selective in revealing information to analysts as such information is used by analysts to put out buy or sell reports on the bank stock. The public in such cases is clearly at a disadvantage as it does not have the information that analysts have and in the process end up taking wrong investment decisions.
The industrialists, if they have listed companies, should also disclose the restructuring of the loans. The public again has an interest in knowing the state of balance sheet of listed companies as they could either be seeking employment in these companies or have equity investments in such companies. Again, analysts are a privy to such information as they track the companies and interact with the management and the public is left floundering when the stock price becomes volatile as analysts put out reports on these companies.
The public disclosure of loan restructuring should be mandatory by any listed entity, whether it is banks or industrial houses. SEBI should make such reporting compulsory as it is under its purview as the protector of investor’s interests. In recent times there have been too many cases where share prices of companies where debt has been an issue falling with a thud leaving more knowledgeable parties richer with the knowledge while the public is left holding the baby.
Transparency is becoming a key issue now with the huge payouts borne by taxpayers on bailouts of banks and governments. Information that should ideally have been in public domain has been used by a few to make money in markets (read short selling of banks exposed to worthless mortgages in the US). Regulators should ensure a level playing field for stakeholders who depend on publicly available information as public information that is made private destroys public confidence in the functioning of markets.