Market watchdog the Securities and Exchange Board of India (Sebi) is considering setting up a common defaulter database in order to provide a one-stop reference point for all types of market players such as brokerages, mutual funds, merchant banks, portfolio managers and rating agencies.
The move would make it easy for any market intermediary to beforehand identify a client, person or institution, that has defaulted in the past and thus avoid doing any business with the same.
The defaulters database for various segments of the capital market is being proposed to be set up on the lines of CIBIL (Credit Information Bureau India), a repository of credit history information of all commercial and consumer borrowers in the country for the benefit of banks and other lending institutions, sources close to the development said.
All the market participants, including stock brokers, portfolio managers, depository participants, merchant bankers, underwriters, asset management companies, credit rating agencies, bankers to an issue, depositories and custodians would be asked to contribute the names and details of their individual defaulters to this common database for the benefit of all others, the sources said.
The repository thus created would serve as a reference database of defaulter clients for the entire spectrum of market participants, they added.
The issue is in advanced stage of discussions with the Sebi and follows a related recommendation made by an expert group that was set up to suggest changes in various functional aspects for the market intermediaries.
"The group discussed the need for setting up a reference database like CIBIL to identify the defaulter clients.
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At present, there is no database or industry wide mechanism that can help intermediaries in identifying the defaulting clients," a senior official said.
The group suggested to Sebi that it make it mandatory for every intermediary to subscribe to such database and update the database with the details of defaulting clients such that other intermediaries may refer to the database before entering into any relationship with a new client.
The official said that mandatory quoting of PAN in all market dealings would help in setting up such a facility.
The expert group also suggested that Sebi might consider discussing with CIBIL for creation of such facility in the interest of intermediaries.
CIBIL was established following an effort made by the government and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors' portfolio quality.
In addition to identifying the loan defaulters, CIBIL also helps in identifying borrowers with good credit history and thus making it easier for them to get fresh loans and similar benefits could be achieved from a market defaulter database, the official added.