INSUBCONTINENT EXCLUSIVE:
MUMBAI:Credit rating agencies will come under closer regulatory watch amid corporates battling bankruptcies, lenders taking hefty haircuts,
and banks trying to prune sticky loans
The Reserve Bank of India (RBI) will conduct regular audit and inspection of rating agencies whose actions can significantly influence the
the Securities and Exchange Board of India (Sebi), which has been monitoring rating agencies since 1999
Recently, communicating its decision to hold joint audit/inspection with Sebi, the central bank has asked agencies to avoid sharp downgrades
that rattle investors, and exercise caution when corporates fish around to shop for a better rating, persons aware of the development told
though not always correctly given the information gaps, faced the heat in recent years due to abrupt downgrades of companies like Amtek Auto
while the banking regulator gives rating agencies the accreditation to carry out ratings on loans (of Rs 10 core and above), money market
instruments like commercial papers and non-fund based banking facilities such letters of credit
The accreditation is given based on rating information.
Loan ratings are significant for banks as higher risk weightage attached to unrated
immediately come to know of defaults in bonds and debentures due to information sharing mechanism in the market for debt instruments
(particularly listed securities), rating agencies get whiff of loan default long after the due date for payment
Neither banks nor RBI have till now agreed to give rating agencies the access to the data on default.
