Within a week of warning credit rating agencies of tough action for lack of transparency, markets watchdog Sebi today said it is revising regulations governing these bodies to bring about more accountability.
“We have taken cognisance of a few events and revisiting the credit rating agency (CRA) regulations. The underlying principle behind these norms is to ensure enhanced transparency and accountability.
“The norms are at a consultation stage and therefore I can’t give a timeline,” Sebi Whole-Time Member Rajeev Kumar Agarwal told reporters.
After issuers of some highly-rated debt instruments defaulted on payments, Sebi recently standardised the ratings symbols, apart from fine-tuning the communication between rating agencies and debenture trustees.
Last week, Sebi Chairman U K Sinha had said the regulator would act tough against rating agencies for their lapses, after it came to light that CRAs were offering only limited disclosures when they suspended ratings.
“We cannot tolerate these practices as investors have the right to know about the reasons behind such moves,” Sinha told senior editors in an interaction.
Hinting at a major overhaul of CRA regulations, Sinha had said Sebi was working on “three-four things” in this regard, including mandatory disclosure of reasons for suspension of ratings.
“If a bond market investor suddenly finds that a rating has been suspended, it must be explained. If a rating agency can give 10 reasons for an upgrade or a downgrade, it must explain the suspension also and it cannot be dismissed in one sentence. Sebi won’t tolerate that,” Sinha had said.
The chairman also spoke about mushrooming of rating agencies, saying it did not want to make it easy for CRAs to mushroom.
There are six rating agencies in the country — the S&P-owned Crisil, Fitch-promoted India Ratings, Moody’s-owned Icra and ARC Rating-affiliated Care Rating, besides standalone agencies Brickwork and Smera Ratings.
It can be noted that mutual fund investors lost heavily from Amtek Auto debt instruments after JP Morgan AMC was forced to delay redemption following cash flow issues at the leading auto component maker.