Parl Panel suggests systemic review by RBI to pre-empt IL&FS type crisis

A Parliamentary panel on Tuesday suggested a thorough systemic review by the Reserve Bank to pre-empt IL&FS kind of crisis, involving systemically important entities.

The Standing Committee on Finance, chaired by Jayant Sinha, in its report said the resolution of IL&FS remains sub-judice before the National Company Law Appellate Tribunal (NCLAT).

"...delays in the resolution process not only brings a steep value erosion to the bankers and other creditors but more importantly leaves the understanding of the lacunae in the system evasive," it said.

The financial crisis in IL&FS came to light after some of its group entities defaulted on debt payments. The government in October 2018 superseded its board.

"...the Committee desires that a thorough systemic review should be conducted by RBI so that such episodes involving 'systemically important entities' are pre-empted," the report said.

The committee said startups with the requisite capability and expertise be encouraged to join the credit rating industry. This might aid in fostering healthy competition and also eliminating complacency in the credit rating industry.

"The Committee further recommend the watchdogs to be more alert and prudent in their enforcement of regulations instead of curbing the growth of credible startups in the industry," the report said.

The panel also noted that the RBI and Sebi have started a joint inspection of credit rating agencies with the role of the central bank specifically focussed on bank loan ratings assigned by CRAs. It said that regulators should remain alert and pro-active to ensure strict enforcement of the regulations.

"The committee would like to re-stress on the need for a fresh evaluation of the credit rating framework in the country .... with a view to reinforcing public confidence in the entire process of credit rating," it added.