India's rating firms want a trade union

Mumbai: Indian rating companies are coming together to form the first such trade association that will set benchmarks for reviewing routine assessments amid growing criticism of huge rating variations on the same borrower, and repeated failures by agencies to forewarn about potential defaults and insolvencies.The proposed association will interact with regulators, set industry-wide standards, and help create public awareness about a trade that is crucial to building India’s corporate bond market. Seven credit rating companies — Icra, CARE, Crisil, India Ratings, Brickwork, Acuite and Infomerics – are expected to come together to form the association.Individual rating agencies did not comment.“They have applied to the Registrar of Companies and an approval is pending,” said a senior official with direct knowledge of the matter. “The registrar is said to be considering the proposal to form an association of rating professionals.”The Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI), too, have been approached by the rating companies on the proposed move to create an industry body. The regulators could not be immediately reached for their comments.Several of the rating company boards have already given the green light for the plan, while others are in the process of doing so.Stakeholders of rating industries, including fund houses, believe there are crucial gaps in awareness-building and standardisation that can be effectively addressed by an industry body.For example, “non-cooperation of the issuer” is a problem faced by many credit rating companies, which struggle to obtain information from borrowers or bond sellers. In the absence of adequate information, rating grades tend to be misleading.Infrastructure financier IL&FS, for instance, defaulted on a series of loans/bonds beginning August 2018, triggering a collapse in India’s non-bank lending space. However, investors were not forewarned about default risks.Since then, credit rating companies have begun streamlining their processes.“Each rating company has a modus operandi in assessing a borrower but lacks uniformity in self-assessments,” said an executive running a public fund.Even a decade ago, rating companies were blamed for encouraging “rating shopping”, which referred to alleged unscrupulous practices in the process of obtaining rating grades.

from Economic Times https://ift.tt/3hb3Jra