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For investors to have a way to badyze the performance of a rating agency, Sebi also asked them to publish detailed information about the rates of Historical conversion of the average rating Photo: Abhijit Bhatlekar / Mint
Mumbai: The Indian market regulator has tightened advertising standards applicable to rating agencies, which had not warned investors in time of deterioration Leasing and Financial Services Ltd's credit profile (Rating agencies will now have to disclose the rated company's liquidity position, the Securities and Exchange Board of India (Sebi) said in a circular on Tuesday.
The liquidity position of a company would include such parameters as liquid investments or cash balances, access to unused credit lines, rat io liquidity coverage and adequacy of cash flows for the service of the maturing debt, Sebi circular
The credit rating agencies should also indicate whether the company expects to have additional funds available to reduce its debt, as well as the name of the entity that will provide the funds. Rating companies will also need to badyze the deterioration of liquidity and check the gap between badets and liabilities.
Tuesday's circular follows a sharp deterioration in the ratings of bonds sold by IL & FS and its related entities after non-compliance with their payment obligations in September. Credit rating agencies (CRAs) had downgraded higher quality bonds (AA + in some cases) into default or junk.
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"Sudden changes in credit rating create an element of surprise and suddenness. Rating agencies should strive to keep them to a minimum. In this context, the consolidated disclosure of the advanced rating actions made available in one place on the custodians and stock exchanges website is a good thing. This will allow stakeholders, including investors and regulators, to compare data from each agency in an efficient and transparent manner and to perform comparative badessments, "said Somasekhar Vemuri, senior director of Crisil Ratings.
For the fourth time, Sebi changed its credit standards. rating agencies. In November 2016, Sebi issued a circular reorganizing the standards for rating agencies after finding that Crisil and CARE (Credit Analysis and Research Ltd.) were not following the prescribed procedure and had failed to monitor the ratings of JP's credit fund. Morgan and Amtek Auto Ltd. Subsequently, the agencies settled the case through a consent mechanism.
In December 2017, following a meeting of its board of directors, Sebi again changed its standards by amending the ownership standards and procedures to follow when withdrawing. a note.
On June 21, after Sebi held a meeting of his board of directors announcing changes to the ownership and governance structure of the rating agencies. "Although this information is good and good, it does not address the important issue of who will" evaluate the rating agency. "There is a lack of accountability If the conduct of a rating agency violates Sebi standards it should not be allowed to settle the offense through a consent mechanism, "said JN Gupta, former executive director of Sebi, who is also the founder of Stakeholder Empowerment Services.
For investors to have As a means of badyzing the performance of a rating agency, Sebi has also asked them to publish detailed information on average historical transition rates between different rating categories, which will allow investors to make more informed decisions and to evidence of discernment when comparing different ratings, according to Vemuri of Crisil.
"The Publication of Transient Statistics This will help investors to see the quality of ratings, especially the stability of ratings. an integral part of the performance evaluation of a rating agency. This, together with the default statistics, will make it possible to compare the performance of rating agencies, "said Vemuri.
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