*****Credit ratings info only where it’s due – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/credit-ratings-info-only-where-its-due/articleshow/92661857.cms

Synopsis

Reportedly, rating agencies also expect Sebi to deal with the pitfalls of rating companies that do not share their financials. Earlier, the agencies wanted regulators to withdraw ratings of around 15,000 companies that were not cooperating to share information. This must be resolved. On their part, banks must not drag their feet in giving a no-objection certificate (NOC) required for agencies to remove the ratings of non-compliant companies. But regulators need to ensure that the structured products market is not throttled by excessively stringent rules.

The Securities and Exchange Board of India‘s (Sebi) move to ask credit rating agencies to share information on all corporates whose ratings are propped up with promoter or parent guarantees and pledge of shares makes sense. Companies lower their cost of borrowings on bank loans and bonds through such supports.

Logically, Sebi’s intervention follows the Reserve Bank‘s strict directives on ratings given to corporate loans due to concerns over delinquency. It will enable Sebi to get a complete picture of companies’ loans, and help resolve the contradictions that have surfaced in the views of the two regulators.

While RBI's directive relates to ratings on loans from banks, Sebi's guidelines allow 'guarantees' and 'letters of support' to bump up the rating for non-convertible debentures. This could result in the same issuer having a higher rating for non-convertible debentures (NCD) and a lower one on a loan. A joint resolution is in order.

Reportedly, rating agencies also expect Sebi to deal with the pitfalls of rating companies that do not share their financials. Earlier, the agencies wanted regulators to withdraw ratings of around 15,000 companies that were not cooperating to share information.

This must be resolved. On their part, banks must not drag their feet in giving a no-objection certificate (NOC) required for agencies to remove the ratings of non-compliant companies. But regulators need to ensure that the structured products market is not throttled by excessively stringent rules.

India also needs a unified regulatory structure for finance that heeds the mandate of a macroprudential regulator. So, subsuming the multiplicity of financial regulators under a common authority that does not see turf overlaps brooks no delay.

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