Mumbai, Feb 25: The panel appointed by the Securities and Exchange Board of India (SEBI) to look into the regulation of credit rating agencies has abandoned its earlier stand that companies must mandatorily disclose all credit ratings received by them.The panel had earlier mooted a proposal to make it mandatory for companies to disclose their credit ratings even if some of these were not accepted by the company. This was done to avoid credit rating shopping which resulted in a company only seeking that credit rating which was acceptable to it and going on to another credit rating outfit if the rating accorded to it was not satisfactory.
The panel, which met here on Tuesday, was of the opinion that forcing the disclosure of all ratings might be a case of overregulation and might be found to be unworkable.
The panel met here on Tuesday to finetune various nitty-gritties on the draft regulations. The final draft is expected to be ready by the next meeting. In keeping with the rationale of minimumregulation, the panel has decided to do away with the net worth criterion for rating agencies floated by financial institutions.
The panel has already decided not to have any say on the fee structure of the credit rating agencies.
The agencies till date have had independent fee structures and their own modalities on how to rate the instruments. The group has also decided to keep the rating committees out of the market watchdog's purview. These committees usually consist of independent representatives.
Members from rating agencies in the panel had earlier expressed their reservations about the net worth criterion since a rating agency uses its professional capacity to rate these instruments and there is no need of a financial leverage for these agencies.
The panel has decided to keep the basic requirements that a corporate with a continuous net worth of Rs 100 core can act as promoters for a rating agency. This is likely to pave the way for corporates to set up a rating agency which is currently themonopoly of financial institutions.
The panel has also decided that rating agencies should rate only securities issued in the capital market. Though, according to sources, this has been a point of conflict between SEBI and RBI officials on the panel. RBI officials want SEBI to regulate the entire range of instruments including fixed deposits.
Copyright(c)1998 Indian Express Newspapers (Bombay) Ltd.
