Close to a third of rated companies do not cooperate with rating agencies

Rating agencies also struggle to find information on default in the event of a non-cooperative entity

Rating agencies say that as of end-March, close to a third of total ratings were of companies which did not readily cooperate in sharing data.

“There was an NBFC (non-bank finance company) which was not cooperating with us for long. We decided to give a default rating based on the limited information available, with an ‘issuer not co-perating’ note. The company reached out to us the next day,” said an official from one of the rating agencies.

Around 32 per cent of the 50,600 ratings were in the issuers not cooperating (INC) category at end-March. Also, according to the data sourced by Business Standard, there is a sharp rise in the INC proportion for all credit rating agencies in India. As of March 2018, seven agencies had a combined total of 48,300 ratings. Of these, 24 per cent comprised firms in the INC category. Rising, as noted, a year later, to 50,600 of which 32 per cent were INC.

“Such instances are more prominent in the below investment grade category,” said the official quoted earlier. An official e-mail query sent to CRISIL, India Ratings, ICRA and Brickworks remained unanswered. A spokesperson for CARE ratings, however, said: “The proportion of non-cooperative clients is going up as a percentage of outstanding clients but it is similar to the industry – presently it is 30-35 per cent for the industry and our ratios are similar.”

The Securities Exchange Board of India (Sebi) requires rating agencies to keep INC ratings active, based on best available information. "Ratings can be discontinued, provided the issuer obtains a no-objection certificate from relevant bankers. However, withdrawals form a small proportion of the total increase in INC cases,” said a sectoral source who did not wish to be identified. Agencies struggle to find information on defaults in such cases. “Where issuers do not cooperate, it is difficult to find when there is a default. In such cases, we seek information from banks but that information is not always forthcoming, “said a senior official from a rating agency who wished to not be identified. 

“We do not always hear from lenders on time about defaults, which in turn delays a default rating,” said another official from an agency, who again wished to stay anonymous. 

Adding: “This has always been an issue and not limited to one conglomerate. Banks tend to not flag defaults in debt at an early stage, as it will require them also to provision for it."