CALCUTTA, June 9: Unit Trust of India (UTI) will soon start seeking dual ratings for fresh exposures in privately-placed debentures of non-banking finance companies (NBFCs).

The move to stress mandates by two rating agencies, obviously prompted by the CRB fiasco, is likely to be taken up at its next investment committee meeting.

The UTI proposal, which may come into effect much before the Reserve Bank of India takes a decision on making dual ratings mandatory, will prompt most leading NBFCs to get their debt instruments rated by two agencies as other financial institutions may follow UTI's example.

Sources said the limitations of a single rating agency were higlighted in the CRB case, when CARE, the IDBI-promoted rating agency, downgraded CRB's public deposits much after the damage had been done.

At present, under the single-rating regime, corporates often go on a shopping spree to get a favourable rating for their debt instruments, as qualitative assessment takes a backseat.

According to sources, although the UTI move will initially cover debt instruments of NBFCs, the noose is also likely to be tightened for other public deposit mobilisation by corporates as well.

Besides, dual ratings will also be advocated for debt-securitisation mop-ups where investment portfolio of NBFCs are taken off the balance sheets and placed with banks and financial institutions.

The RBI, at its last meeting with rating agencies, stressed on a uniform rating procedure. But this was turned down by the raters.

"A uniform procedure for rating is just not feasible since it will amount to breach of confidentiality. On the contrary, dual or multiple ratings will result in greater transparency and strengthen the due diligence exercise," a top official at a rating agency said.

Sources pointed out quite a few incidents in the recent past where rating agencies have faltered in conducting due diligence on a continuous basis and maintaining a fool-proof surveillance system. Crisil, the country's largest agency was caught on the wrong foot as it continued to accord its highest safety rating (FAA) to Mideast Steel much after the company started defaulting on inter-corporate deposits. The downgrading followed only weeks later.

That Crisil also had to downgrade Vijaya Bank's certificate of deposits from P1 to P2, a 1-year paper, also amply points out the lack of an exhaustive due-diligence exercise, sources said.

Rating agencies, who also have been advocating the need to make dual rating mandatory, argue that the cost of a rating exercise is quite negligible only around 0.1 per cent of the issue size.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.