Securities and Exchange Board of India (Sebi) asking rating agencies to disclose the list of unacceptable ratings on its website is a welcome step, said Amit Tandon, founder and managing director, Institutional Investor Advisory Services (IiAS).
Speaking to CNBC-TV18, Tandon said, "Not sure of what Sebi is trying to achieve by having the rating reviewed by an independent committee. Also, not sure if it fits in well with how the rating agencies run their business."
"Basically, this is a move towards better governance and disclosures. Going forward, shopping for ratings becomes a tricky business for corporates. Earlier, if they got a bad rating, say from one agency, they could go to another agency and get their rating improved and won't disclose the first rating. But now this won’t be possible. The first agency will have to display the rating on their website," said CNBC-TV18's Sonal Sachdev.
Earlier, markets regulator Sebi has allowed debt issuers to review ratings given by agencies, a move that will check the menace of 'rating shopping' and 'pick-and-choose' approach in their actions.
In the past, several firms have expressed dissatisfaction against credit rating agencies (CRAs) after ratings on their debt were suddenly downgraded or withdrawn.
Now, such firms may approach credit rating agencies with more supporting documents for a better rating.
"In the interest of transparency and fairness, it has been decided that all cases of requests by an issuers for review of the rating(s) provided to its instrument(s) by the CRA, shall be reviewed by a rating committee of the CRA that shall consist of a majority of independent members," Sebi said in a circular.
The move is aimed at enhancing the governance, accountability and functioning of credit rating agencies (CRAs), the Securities and Exchange Board of India (Sebi) added.
The regulator has also defined "independent" members as those people that have any no pecuniary relationship with the CRA or any of its employees.
In order to make the disclosures more relevant, Sebi said that all non accepted ratings will have to be disclosed on the CRAs website for a period of 12 months in a prescribed format.
This disclosure includes name of the issuer, sector, type of instrument, issue size, listing status of the instrument, rating assigned as well as date of non-acceptance of rating.(With inputs from PTI)