To protect investor interest, market regulator Sebi is working on a mechanism to improve the time and frequency of communication between the credit rating agencies and debenture trustees with respect to changes in debt instrument ratings of listed firms.
“The time and frequency of communication between a credit rating agency (CRA) and debenture trustee needs improvement,” Sebi chairman U K Sinha said here.
Nothing that investors tend to suffer by not getting information with respect to changes in rating of debt instruments within the right time, Sinha said that the market regulator is “getting into the area” to ensure that relevant communication takes place between a CRA and debenture trustees in a timely manner.
“There is no institutional mechanism for a dialogue between CRA and debenture trustee. We have started working on it now,” Sebi chief said.
“If they (debenture trustee) are told in time then investor interest can be protected,” he said.
Sinha comments come in the backdrop of Amtek Auto fiasco and a growing number of loan defaults, triggering downgrade or suspension of ratings without the same being properly communicated to investors.
“We observed that the reason for suspending ratings were not known,” the Sebi chief said.
“So we have told them that and perhaps will issue instructions. The dialogue and consultation process is going on,” he said.
Sinha also said that Sebi has advised mutual funds to have their own internal system to analyse debt instruments in addition to ratings from CRAs.
Besides, he said that the regulator had asked the International Advisory Board if regulations can be framed to ensure that members of a rating committee are external.
“The board has advised us that no regulator should be prescribing who the members of rating committee should be, so we will not be doing that,” Sinha said.
“But we do hope CRA process of rating is not guided by any conflict of interest,” he said noting that so far the regulator has not witnessed any single instance where the rating process can be doubted.
“Sebi’s view is that CRA performs an important role. It is also for CRA that expectations of companies and investors are met in a transparent manner,” he said.
On the corporate bond market, he noted that many companies have begun to use debt issues to meet their short term requirements and while the debt market has not grown as per expectation, “in coming years corporate bonds market should grow substantially,” Sinha said at the ICRA 25th anniversary celebrations last night.