Regulator Sebi is looking to review the framework for credit rating agencies as it seeks to check the menace of ‘rating shopping’ and pick-and-choose approach in their actions. The move follows controversy over rating actions on firms like Reliance Communications. Securities and Exchange Board of India (Sebi), which has the mandate to regulate credit rating agencies in the country, plans to soon come out with a detailed discussion paper on the issue.
The draft norms are expected to be put in public domain for comments from all concerned stakeholders and the final regulations would be framed after taking into account their suggestions. “The delay in rating action is a matter of great concern. and we are working on a paper there too on rules and regulatory framework for credit rating agencies and we are trying to come out with it in near future for consultation,” Sebi Chairman Ajay Tyagi had said.
In market parlance, rating shopping refers to the practice of handing out rosy ratings to riskier assets by credit rating agencies in an effort to gain more business. It has been felt that the disclosure norms need to be tightened to ensure that credit rating agencies avoid any conflict of interest while deciding and disclosing their rating actions.