India asks Fitch why it shared confidential info with US SEC

After Fitch Ratings gave its lowest investment grade rating to India with a negative outlook in June 2012, the government has charged the global ratings agency with sharing confidential information with the US Securities & Exchange Commission (SEC), sources said.

According to people familiar with the development, India is concerned that SEC, which enforces federal security laws and regulates the securities market in the US, might have influenced Fitch’s poor rating on India. India has expressed its displeasure that the ratings can be influenced on non-technical considerations such as political, economic or other vested interests by host country regulators under whose jurisdiction the rating agency is registered.

Government officials said India has asked Fitch why has it provided India rating file to SEC. Officials, however, added it was not confirmed if SEC had given any directions to Fitch with regard to its rating process or rating outcome in relation to the actual rating assigned to India’s sovereign debt.

“It is understood that the main objection to Fitch’s action is that it raises issues of client confidentiality, as a significant portion of the information gathered by Fitch in its interaction with the government was privileged and non-public information that has now been released to US SEC,” said an official, who did not wish to be identified because of the sensitivity of the issue.

Fitch Ratings did not respond to an e-mail questionnaire from Business Standard at the time of going to press.

Fitch Ratings was one of the three ratings agencies, together with Moody’s and Standard & Poor’s (S&P), first approved by SEC as a nationally-recognised statistical rating organisation in 1975. It last visited India on April 12, 2013 for undertaking annual review of India’s sovereign debt rating. In June 2012, it had changed India’s rating outlook from ‘stable’ to ‘negative’.

“India deems it unacceptable that a ratings agency behaviour relating to a sovereign is determined not by its own best judgment, but by the directions given under the regulatory regime set up by an instrumentality of another sovereign,” said the official.

India’s argument is that information relating to ratings on sovereigns cannot be treated similar to the information relating to ratings on commercial entities. The country has warned that Fitch’s action would raise serious doubts in the minds of investors as well as rated entities about data confidentiality, impartiality, and independence of process.

Last month, global credit rating agency S&P had warned that it might downgrade India’s sovereign rating to junk grade if the government failed to pursue reforms and check deterioration in fiscal and current account deficits. While retaining India’s sovereign rating at ‘BBB-’ with a negative outlook, S&P said there was at least a one-in-three likelihood of a downgrade within the next 12 months.

RATINGS SCRUTINY

• According to people familiar with the development, India is concerned that SEC, which enforces federal security laws and regulates the securities market in the US, might have influenced Fitch’s poor rating on India
• Fitch Ratings was one of the three ratings agencies, together with Moody’s and Standard & Poor’s (S&P), first approved by SEC as a nationally-recognised statistical rating organisation in 1975
• It last visited India on April 12, 2013 for undertaking annual review of India’s sovereign debt rating
• In June 2012, it had changed India’s rating outlook from ‘stable’ to ‘negative’