RBI Slams Credit Rating Agencies For ‘Rating Shopping’
[ By Bobby Anthony ]The 25th edition of the Reserve Bank of India’s (RBI) Financial Stability Report has criticized credit rating agencies for allowing poorly rated companies to do what is known as ‘rating shopping’, which enables such firms to get a better rating.Significantly, the RBI’s criticism has come after the Securities and Exchange Board of India’s (SEBI) recent rap on...
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The 25th edition of the Reserve Bank of India’s (RBI) Financial Stability Report has criticized credit rating agencies for allowing poorly rated companies to do what is known as ‘rating shopping’, which enables such firms to get a better rating.
Significantly, the RBI’s criticism has come after the Securities and Exchange Board of India’s (SEBI) recent rap on the knuckles of rating agencies for their role in the implosion of bad loans.
The RBI report has warned of 'rating shopping' by companies for long-term bank loans based on indicative ratings given by credit rating agencies which are not available to banks or investors.
The report notes that "most rating shopping happened around 'BBB' or lower graded instruments and has called for closer scrutiny of instances of rating shopping".
The report has also noted that recent SEBI findings noted instances where credit rating agencies provided 'indicative ratings' to issuers without entering into written agreements with such issuers and “since such 'indicative ratings' are not disclosed by CRAs on their websites, it becomes difficult to identify instances of possible rating shopping”.
The RBI pointed out that there are clear indications of investors in debt instruments using additional credit-screening mechanisms, along with ratings given by credit rating agencies.
