Despite the Securities and Exchange Board of India issuing additional guidelines permitting unsolicited ratings in 2010, the concept has not really taken off in India.
Credit rating agencies (CRA) are still preferring to play it safe by sticking to perform only mandated ratings. Unsolicited rating allows CRA to issue a rating even if its has not been assigned by the company to do so. Industry experts attribute several challenges for unsolicited ratings failing to take off in India.
?Given the fact that such a large universe of companies are available, various rating agencies are busy with their mandated works assigned to them by the issuers. This is the main reason why rating agencies are not seriously looking at the prospects of unsolicited ratings,? said Amit Tandon, CEO, Fitch Rating.
But he admitted that Fitch will be looking forward to do such rating going forward. ?If we are covering an entire sector, it doesn?t make sense to rate one or two companies in isolation. In such a scenario it makes sense for a rating agency to go ahead and rate other companies in the sector even if there is no mandate from those companies,? he said.
However, others feel that lack of reliable and accurate data as the major reason for keeping away from unsolicited rating. ?Ultimately, ratings should be meaningful and sensible for investors to compare and benchmark,? feels L Shivakumar, Senior VP, ICRA Rating, which had decided to stick to solicited ratings for the moment.
He explained that in a normal rating process, apart from using lot of publicly available information, the rating agency also relies a lot on management meetings, plant visits among others which serve as a very useful inputs in the rating process. ?That kind of interaction is possible only when the management are actively involved,? he added.
?As a matter of policy we have decided to continue with solicited rating as we firmly believe that to enhance the comfortness of the user of our rating, it must be based on appropriate and adequate information which is not possible under unsolicited rating,? said Raman Uberoi, senior director- Crisil Rating.
The basic intention behind allowing unsolicited ratings was to end monopoly of few entities and increase competition that will give users of ratings multiple options to compare and take appropriate decisions.
?Even globally unsolicited ratings were initially undertaken by a new entrant to establish their presence in the industry,? said Vivek Kulkarni, MD, BrickWork Rating.