The government is in talks with market regulator Securities and Exchange Board of India (Sebi) on steps to make credit rating agencies more accountable for the ratings they endorse, according to a senior government official.
“Finance ministry and Sebi are in talks to ensure more accountability for rating agencies. For this, finance ministry has asked Sebi to submit suggestions with respect to how credit rating agencies can be held more responsible within a month so that these suggestions can be streamlined and if need be then moved as amendments in the Sebi Act,” the senior government official told CNBC-TV18 on condition of anonymity.
Sebi, in November last year, issued norms for enhancing disclosures by credit rating agencies, asking them to furnish information whether the rating is factoring in support from a parent, group or government, with an expectation of infusion of funds towards timely debt servicing, among others.
Rating agencies have come under pressure after they failed to raise timely red flags ahead of debt defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS) until after a subsidiary defaulted on some of its debt last year. A string of subsequent defaults at IL&FS triggered sharp declines in Indian stock and debt markets, spreading fears of contagion within the rest of the country’s financial sector and prompting the government to step in and take control of IL&FS.
“Sebi feels rating agencies should have more responsibility towards their ratings and the new suggestions might also mean reworking the penal provisions and Sebi is likely to look at stricter penal actions against rating agencies,” the above mentioned official said. “Sebi board members push for more transparency & accountability similar to the new rules governing auditors,” the official added.
However, when asked whether the government is in favour of a new regulatory authority especially for rating agencies, similar to NFRA for auditors, the official said, “Sebi is well equipped and no such new authority needs to be created.”
The big three global agencies – Moody’s, Standard & Poor’s and Fitch – are majority owners of firms in India. Those firms operate separately from their parent companies and have different rating standards.