[ Credit Rating Agencies ]–Watch out! | Business Line–23.08.2017

Any consolidation by credit rating agencies in India should be restricted. Fitch, Moody’s and Standard & Poor’s (S&P) are the Big3 that dominate global financial markets with the power to test creditworthiness of corporations and countries. All three are US-based and are symbols of a flawed model, especially after their failure to predict the sub-prime bubble which caused the 2008 financial crises. In a credibility driven business, examples of such failures and subsequent regulatory action on rating agencies are ample. Yet vested interests have ensured that they remain strong lobbies unto themselves, feared for their ability to disrupt a company’s or country’s ability to function effectively.

In India, SEBI and RBI have a duty to check attempts by rating agencies to establish supremacy. But Crisil’s nearly 9 per cent stake buy in CARE Ratings in June for ₹435 crore attracted little attention. With annual bond issuance of over $100 billion, India has a mouthwatering debt market for ratings. CARE was the only homegrown agency with around 29 per cent market share in the business without any of the Big3 as a shareholder till June. Crisil, with around 49 per cent market share, is now the second largest shareholder in CARE after LIC’s 9.56 per cent stake. Still there are other US institutions holding a stake in CARE.

Crisil, a subsidiary of S&P, is a potential monopoly in India. Crisil and CARE will together control around 80 per cent of ratings business domestically. CARE has no identifiable promoter giving top shareholders determining power in key decisions. Crisil has termed its stake buy in CARE a mere investment but the cash burn is twice its annual net profit and can’t be without reason. ICRA with 22 per cent market share in India is a subsidiary of Moody’s. Fitch is spreading its wings. The Big3 are already in control and any more legroom to them is detrimental.

Senior Assistant Editor

via Watch out! | Business Line