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The menace of bad loans given by Indian banks is a never ending saga. At its core, lies the belief of prominent businessmen that they can get away even if they default. The classic case of Vijay Mallya brought this issue into public limelight.
People like Vijay Mallya have been categorised as wilful defaulters by the RBI. The regulator, government, investigating agencies, and the banks have all become very strict. And now the market regulator has got in on the act.
SEBI in its board meeting on 12 March, has notified the norms that will apply to wilful defaulters. The new rules are quite strict indeed.
SEBI has disallowed defaulters from raising public funds through stocks and bonds. The regulator has also banned them from occupying a position on the board of a listed company. These individuals have also been banned from setting up any market intermediary like a mutual fund or a brokerage firm. The new rules also prohibit wilful defaulters from taking over any listed firm.
As an article in the Business Standard states, these norms have disqualified Vijay Mallya, from various posts he holds at the moment. Indeed, this would be true for all wilful defaulters.
So will these norms protect the interests of minority shareholders? We believe they do. If a promoter has wilfully defaulted on loans he has taken from banks, then it's quite obvious that he was never serious about repaying them in the first place. Such individuals should never be allowed to ask for money from the public in our view. If they treat banks with such contempt, then why should anyone expect them to treat the aam investor with any respect?
The norms laid out by SEBI is one more step in the right direction. The wilful defaulter problem is so huge, that it would take many years to be fully resolved. However, every correct step taken, brings us closer towards the final resolution.
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