NEW DELHI, May 26: While it is clearly premature to hold the credit rating agency CARE (promoted by the IDBI) responsible for the problem at CRB Caps CARE had given it's Rs 200 crore fixed deposit issue an "A+" rating - the fact remains that there have been several instances where credit rating agencies have gone horribly wrong.Most would remember how, less than a year ago, the country's leading credit rating agency CRISIL was forced to downgrade its rating of Mideast Shoes from "AA" to "D" (or default grade) when press reports surfaced about the company defaulting on loan repayments. Similarly, when over a year ago, CRISIL and ICRA gave an "A+" rating (symbolising adequate safety) to Lloyd's Finance, CARE gave it the highest rating of "AAA", or one of negligible risk.The problem, however, is not that credit rating agencies are incompetent. It runs deeper. The crux of the problem is that the rules governing credit rating in the country are still too lenient, and allow unscrupulous corporates to get away with murder. Thus, if one credit rating agency gives the corporate a bad rating, all it does is to go to another agency.In fact, close to 30 % of the ratings done by agencies, are not accepted by clients who then move on to other agencies for better ratings. Thus, while CRISIL has rated 2,011 instruments of companies till date, the clients have accepted only 1,359 of these. ICRA has done 1,070 ratings and 690 of these have been accepted. CARE has done 484, of which 167 have not been accepted.There is nothing in the law which makes it mandatory for corporates to disclose the rating they have got by an agency, though the draft code on corporate governance of CII has recommended that this be made mandatory. While the code of secrecy prevents the rating agencies from disclosing details, it is believed that close to a third of the ratings which are not accepted are those of non-banking finance companies like CRB.Incidentally, it is believed that at the time that CARE gave CRB's Rs 200 crore fixed deposit a "A+" rating, at least one of the two big credit rating agencies - Crisil and ICRA - gave the issue a "speculative" rating.The problem, according to the agencies, stems from the fact that there is too much competition which is forcing agencies to cut corners to vie for the same business.
