Credit-rating agencies have been mandated to list bank-wise term-loan data availed by borrowers. Companies and banks say it’s a breach of client confidentiality.
Starting August, the Reserve Bank of India (RBI) made it mandatory for credit-rating agencies (CRAs) to disclose bank-wise term-loan details of clients or the borrowers for whom ratings were reaffirmed or freshly given.
This mandate was given to the CRAs early this year with the objective to increase disclosures in rating reports. CRAs began implementing this order from the central bank, but sources in the know say India Inc. is resisting such disclosures. “Many companies have expressed their discomfort in divulging bank-wise details of loan exposure and don’t want it to be part of the rating rationale,” says the CEO of a leading CRA.
India Inc. on its part has also approached the central bank to reconsider its stand on such disclosures. Some large conglomerates have written to the RBI asking it to withdraw this requirement. “Information shared with banks and CRAs is highly confidential and is governed by client privilege. Why should such important information be made public?” asks the CFO of a leading cement company.
To put things in context, there are three segments which make up rating documents. Rating rationale captures the score ascribed to the instrument or loan exposure under review and also explains how the score or rating was arrived at. As part of improving transparency, CRAs are required to disclose bank-wise outstanding of the borrower and this is required for fund and non-fund-based exposures as an annexure to the rating rationale.
Whenever there is an increase in credit facility and/or change in composition of term loans, it has to be updated in the annexure. Among the other two documents – rating perspective and rating letter, the former is a paid service which has elaborate details of the client. The rating letter is a confidential communication between the borrower (client) and the CRA and is shared with bankers of the client. This enumerates lender-wise and facility-wise exposure of the borrower.
“For new rating engagements, we have started following this method of reporting. However, in case of legacy clients, some are not comfortable adopting this format of disclosure,” says a senior rating officer of a CRA. On whether such clients should be classified as non-cooperative or not, CRAs say they would first intimate the RBI about such clients. “Technically they are not non-cooperative. They are only resisting certain disclosures being made public,” he adds. “It’s now for RBI to take a call on the matter” says the CFO quoted earlier.
According to highly placed sources, this time around it is unlikely that the RBI would budge on requests from India Inc. Bank-wise public disclosure of loan details in the credit-rating documents was something which was in the works for several years and it has now been implemented. “If the objective is to disseminate as much information as possible, why should the RBI roll back this requirement?” asks the person quoted earlier.