To seek more transparency, Sebi tightens norms for credit rating agencies

After incidents of sudden sharp corporate rating changes that created concerns among investors, market regulator, Securities and Exchange Board of India (SEBI) has decided to enhance disclosure rules for credit rating agencies. The move will boost transparency and accountability.

Talking to News Nation, market expert, Avinash Gorakshakar explained, “To begin with, there will be more stringent disclosure requirements. Rating agencies will have to explain in detail the rating methodology, the rating history and the responsibility of analysts. In addition, the rating committee will be asked to explain whenever there is a downgrade or upgrade to a rating. Rating agencies have also been told not to suddenly suspend the rating of a company, as happened in the case of Amtek Auto. Rating agencies will also be required to provide an outlook, in line with the global practice.”

The new guidelines need to be implemented by the agencies in the next 60 days.

Agencies will also have to disclose details of ratings even if a rating is not accepted by a debt issuer, or if a review is not made by the time an updated rating is due, SEBI said.

SEBI said in cases where a debt issuer did not co-operate with an agency by withholding information or not paying fees, the agency would continue to rate the instrument based on the best available information and disclose the situation.

India has a handful ratings agencies, including local arms of the big global operations. They mainly blame debt issuers for not cooperating with them and cite the fact that they can only give ratings based on what they know.