RBI turns down Sebi plan for credit rating agencies' access to defaults

Reserve Bank of India
The Reserve Bank of India (RBI) has expressed disagreement over the Securities and Exchange Board of India’s (Sebi) proposed framework enabling credit rating agencies (CRAs) to legally access borrower database, helping them in timely recognition of default.

A panel of financial regulators, including the Pension Fund Regulatory and Development Authority and the Insurance Regulatory and Development Authority of India as well as the RBI and Sebi, met last month and discussed a proposal to give CRAs limited access to the RBI’s Central Repository of Information on Large Credits (CRILC).

The CRILC is a borrower-level data set focusing on systemically important credit exposures. Banks report to the CRILC credit information on all their borrowers having aggregate fund-based and non-fund-based exposure of Rs 50 million and above.

Sources said the central bank had cited sensitivity and confidentially issues for allowing third-party access to large credit data information. The RBI had also assured that it would ask lenders to improve the information sharing under the current mechanism of Credit Information Company (CIC).

Currently, the rating agencies can access the CIC that is an independent, third-party institution collecting financial data regarding loans, credit cards, and more about individuals and shares it with its members. Banks and non-banking financial institutions usually take data from the CIC.

Sebi argued rating agencies cannot decide ratings based on the CIC, as it is not rapid, clean and accurate. It also said the CIC did not provide the updated data about the history of borrowers, repayment dues and so on.

The market regulator said there was a substantial difference in the default data disclosed by rating agencies and the one available with the CRILC. Even the central bank has raised this concern over divergence in default rates identified by the CRAs and the CRILC.  

“Banks are mandated to provide all updates about borrowers to the RBI’s repository. But, the lenders have been reluctant on sharing the same with CRAs due to their confidentiality clause with the said borrower,” said the source cited above.  

To address this, Sebi recently amended its regulations on rating agencies by adding a clause in the agreement between an issuer and a rater to provide an “explicit consent” from the issuer to obtain information related to loans, repayment, delay, etc. from banks or other lending institutions.

Sources said banks are miffed with this amendment as giving individual borrower data is a tedious job which would increase their workload. The RBI, too, is not willing to allow banks to give individual credit account information.

Amid surging cases of debt defaults including in IL&FS, the role of rating agencies have come under the regulatory glare. The market regulator has been making constant changes in the CRA rules for better monitoring and improving performance.

CRAs have been complaining they are dependent on the information provided by the borrowers as banks never disclose borrowing and lending information.

In 2017, Sebi had proposed it make it mandatory for listed companies to make disclosure of their loan defaults to the stock exchanges if they fail to make repayment of dues and interest within 24 hours. However, the proposal was then turned down by the government, as the central bank was of view that banks would need another Rs 26,000 crore capital if the measure was implemented.