Rating agencies must refrain from unhealthy rivalry: SMERA

Amid the Amtek Auto controversy, credit rating agency SMERA has said agencies at all costs should refrain from unhealthy competition and race for the market share in order to avoid similar failures.
"It's a wake-up call. I am happy that this has come to the fore because sometime such incidents help correct the system before the entire system fails. At the same time, I believe the credit rating system in India despite its flaws and possibility of improvements is adding a lot of value to the financial markets," Sankar Chakraborti CEO SMERA told PTI.
We have to learn from Amtek incident and use the learning to help avoid similar failures, he said.

Amtek Auto has missed payments on its Rs 800-crore worth of five-year foreign currency bonds that got matured on September 20.
"Rating agencies at all costs have to refrain from unhealthy competition and a race for market share. Analytical rigour, curiosity and quest for knowledge, highest ethical standards and rock solid work flows should be the core DNA of each rating agency.
"That is the only recipe for long-term success of the industry. You forget that and there's another Amtek waiting to happen," Chakraborti said.

Lenders have an exposure of around Rs 8,000 crore to Amtek Auto, which is a part of Amtek Group, the component manufacturers with global presence.

"Unfortunately, the Amtek saga may trigger a reaction of widespread lack of trust that may be counter-productive. In India we have 7 accredited rating agencies, higher than most countries. Definitely too high to have healthy competition.
"But on the other hand, investors do not have access to enough information or enough choice of opinion. All of us have to ensure that we do not react in a manner that aggravates this situation," he said.
When asked what role a ratings agency can play to flag off liquidity crisis in a company and protect the interest of investors in these kind of situations, Chakraborti said, "Rating agencies can issue releases informing the market about such impending developments and also about the potential implication on rating. Such information has to be timely and backed by good research."

SMERA Ratings (formerly SME Rating Agency of India) is a joint initiative of Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India (D&B) and leading public and private sector banks in India.