Currently, the practice among companies is to go for a second credit rating if the first rating is unfavourable to them. Companies then hide the first rating and publicise the second rating for fund mobilisation. The panel's proposal to disclose unaccepted rating will put an end to this practice.

The panel, chaired by SEBI executive director Vijay Ranjan, has suggested that dual ratings for all debt issues above Rs 100 crore should be made mandatory through an amendment in Sebi's disclosure and investor protection guidelines. ``If a company's securities are rated by an associate, then a rating by another rating agency should be compulsorily obtained and disclosure of bothratings be prescribed,'' Sebi said.

The report has been made public for comments and the Sebi board would clear the report after incorporating some comments from the public by October 26.According to Sebi, only those ratings of securities will be regulated by Sebi which are used or proposed to be used by the issuers to comply with or fulfil a requirement prescribed by Sebi in any of Sebi's regulations or guidelines. The regulations will cover the rating of securities only and should not cover the rating of fixed deposits, LPG dealers, corporates, foreign exchange and countries as they do not fall under the regulatory purview of Sebi.

A credit rating agency could be promoted by a public financial institution, a scheduled bank, a foreign bank operating in India, a foreign credit rating agency recognised in the country of its incorporation, having at least five years experience in rating or any other company having a continuous minimum net worth of Rs 100 crore for five years prior to filing its applicationto Sebi.

The promoters would be required to collectively hold at least 26 per cent of the paid-up capital of an agency for a minimum period of five years. There should be no minimum net worth or infrastructure prescribed for a credit rating agency. ``Compulsory disclosure of unaccepted ratings to investors should be prescribed,'' the panel said.

Sebi's inspection of a rating agency should not normally judge the appropriateness of analysis by a rating agency for arriving at a rating decision. ``Inspections for judging appropriateness should be very sparingly undertaken in cases of serious complaint and such inspections should be carried out only by a panel constituted by Sebi consisting of majority of independent experts with relevant experience,'' the panel suggested.

It said standardisation of methodology across rating agencies should not be insisted upon. ``Composition of the rating committee should be left to the discretion of a rating agency. The rating agencies should not be disallowed frominvesting in the securities issued by their clients. They should be required to frame their own norms for investments in such securities,'' the panel said.

The committee also noted that the regulator should not insist upon uniform rating symbols, standardisation of methodology across rating agencies and that the composition of a rating committee should be left to the discretion of the agency.

Moreover, the committee opined that rating agencies should not be disallowed to invest in the securities of their clients.