SEBI norms for credit rating agencies soon

CRB Capital Markets was given top rating by an agency just before the scam broke out. Even after the CRB scam, many finance companies which were given triple A rating have defaulted in their payment commitments.

SEBI and RBI would have to sort out duplicity in regulation. It may be recalled that RBI had called four rating agencies — Crisil, Care, Icra and Duff & Phelps — for a meeting a fortnight ago and asked them to standardise their rating mechanism.

This measure will stop companies from taking advantage of the new regulatory norms fornon-banking finance companies, floated by the Reserve Bank last week, which stipulate that a company can use the favourable rating assigned to it. The Reserve Bank also directed the rating agencies to report to the central bank on a monthly basis.

This is the first meeting of the central bank with the rating agencies ever since the new regulatory norms for NBFCs were announced.

The agencies were also told to interact regularly with the department for non-banking supervision. They were directed to keep the apex bank updated about possible downgrades and happenings in the finance companies.

To circumvent the poor rating assigned by one single agency, the finance companies could refuse the rating and was free to approach another agency to obtain a satisfactory rating. In addition, banks, financial institutions and even the non-banking finance companies controlled the ownership of the rating agencies by acquiring stake in them.