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ICRA downgrading its promoter, IFCI, is a landmark of sorts in Indian rating agencies' history. Sceptics have for long pointed to credit-rating agencies' disinclination to reconsider ratings of their promoters, even in the light of rising evidence of higher non-performing assets, as proof that the FIs would never allow an objective assessment of their financials. That scepticism has now been dented to some extent, although it can be argued that a downgrade from "highest safety" to "higher safety" does not amount to much for a firm which has seen its profitability decline drastically and its NPAs rise substantially. It would be premature to judge, on this downgrade's basis alone, that an arm's length relationship between the rating agency and promoter has been established. To be sure, Icra has said that it has no shareholder representatives on its rating panels, but, in the circumstances, the onus of proof is on rating agencies to prove their actual independence. The Icra action, while welcome, comes too lateand goes only some distance towards proving that. Particularly when viewed in the light of the fact that any other company in comparable circumstances would very probably have merited far more serious censure by rating agencies.
The reasons for the downgrade have been cited as deterioration in business conditions affecting asset quality, decline in spreads and competition from banks. None of these factors have occurred overnight. In fact, analysts would argue that IFCI's provisioning cleans up its balance sheet, enabling it to reap the benefits when a recovery occurs. Hopes of an economic recovery round the corner have already caused FI stocks to move up in recent times. As usual, rating agencies seem to be one step behind the markets.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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