SEBI Allows Rating Agencies To Collect Debt Data Details Of Their Clients In Order To Prevent Potential Loan Defaults
[ By Bobby Anthony ]The Securities And Exchange Board of India has allowed credit rating agencies to get details of the existing as well as future debt of their clients.The idea behind the move is to help credit rating agencies to identify any potential defaults in a timely manner.The development is being seen as the fallout of the recent collapse of Infrastructure Leasing and Financial...
The Securities And Exchange Board of India has allowed credit rating agencies to get details of the existing as well as future debt of their clients.
The idea behind the move is to help credit rating agencies to identify any potential defaults in a timely manner.
The development is being seen as the fallout of the recent collapse of Infrastructure Leasing and Financial Services (IL&FS) in 2018, which led to a series of defaults by several non-banking financial companies and adversely impacted credit growth, resulting in a slowdown.
The latest move has enabled rating agencies to get what is known as “explicit consent” from clients in rating agreements in order to secure details about debt repayments, besides any delays or defaults from lenders or other organizations.
It may be recalled that in recent times, the capital market regulator has cracked down on rating agencies agencies, after a series of sudden downgrades and withdrawals of ratings and for failing to identify potential defaults in time.
SEBI has also been tightening disclosure regulations to boost transparency, monitoring and accountability of rating agencies after an audit firm report revealed specific cases where ratings were changed after a review and meetings with the IL&FS top brass.
Instances were also found where ratings were even allegedly ‘prepared’ by erstwhile directors of IL&FS.
According to the report, there were instances where high ratings were eventually cleared despite concerns within agencies if such ratings were really justified.
Incidentally, four credit rating companies namely ICRA, CARE, India Ratings and Brickwork Ratings, were involved in rating various instruments issued by IFIN during 2013-2018.
Based on such faked ratings and audit reports, more than Rs 20,000 crore was invested by provident funds, mutual funds and insurance funds in such dodgy financial instruments issued by IL&FS and its various units like IFIN.