RBI may bar dual functions of rating agencies
New Delhi: The Reserve Bank of India may disallow credit rating agencies from the dual role of being advisor-cum-rating agencies for companies.
The move aims to prevent such entities from making biased assessments about the financial condition of their clients and restrict conflict of interest that may seep in.
Official sources said that the banking regulator may soon initiate a dialogue with market regulator Securities and Exchange Board of India (SEBI) to flesh out new regulations that would impact the way credit rating agencies function.
The changes have become imperative post the IL&FS fiasco where the role of rating agencies came into question. Just a month after giving high ratings for debt papers of IL&FS bonds in August, the ratings were brought down several notches following the company defaulting in interest payments on its bonds.
Credit rating agencies are jointly regulated by both Sebi and RBI as these firms rate bank loans and NBFCs, which constitute 70 per cent of their business.
Last week, in a meeting with top credit ratings officials, central bank governor Shaktikanta Das and the deputy governors raised doubts over rating agencies’ ability to assess credit risk and take timely rating action, said a source present there.
The source added that RBI is very miffed with these agencies for comfortably carrying out the dual job of rating the bonds and doing valuation as well as advisory for the same bonds over and over again.