The Securities and Exchange Board of India
(Sebi) on Wednesday directed rating agencies to set up committees to hear the appeals of issuers aggrieved by the ratings assigned to them. Currently, there is no stipulated mechanism to review such issues.
“To ensure transparency and fairness, it has been decided that requests by issuers for review of the ratings will be reviewed by a rating committee
that shall comprise a majority of independent members,” Sebi
The move follows hundreds of complaints filed by companies last year challenging the ratings assigned to their products. However, as there is no proper mechanism, issuers often move to another credit rating agency (CRA).
has issued a new framework for disclosures, which covers the process to be followed when the rating is not accepted by the issuer.
The regulator's announcement follows last year's consultation paper, issued in September last year. Sebi
has said the majority of members on the review committee
should be independent.
“Independent will mean people not having any pecuniary relationship with the CRA or its employees,” Sebi
The regulator has directed rating agencies to disclose all non-accepted ratings on their website for 12 months. Under the modified disclosure requirement, the CRAs
will have to disclose the list of defaulters on a half-yearly basis. Further, it has asked CRAs
to conduct internal audit with a panel of at least one chartered accountant and a certified auditor.
expects an independent committee will bring fresh perspective if a client is not satisfied with the rating. However, how it works out remains to be seen, especially because there are strict timelines within which reviews have to be completed,” said an official of a ratings agency.
The complaint against ratings has increased in the past year, especially when CRAs
were compelled to disclose ratings in public along with the rationale behind it.
Last July, Sebi
had asked rating agencies to proactively monitor the financial health, including share price movement, of companies to provide timely and accurate ratings on their debts. The decision follows several instances of CRAs
not taking cognizance of delays in servicing debt obligations by the issuers they rate, despite the information being discounted by the market.