Sebi allows CRAs to withdraw ratings assigned to instrument

Markets regulator Sebi today allowed credit rating agencies to withdraw the ratings assigned to a financial instrument and provide reason for such a move.

This is aimed at strengthening the accountability and functioning of credit rating agencies (CRAs).

In a circular, the Securities and Exchange Board of India (Sebi) said a CRA may withdraw a rating.

This is subject to CRA having rated the instrument continuously for five years or 50 per cent of the tenure of the instrument, whichever is higher.

Further, the rating agency has received an undertaking from the issuer that a rating is available on that instrument.

"At the time of withdrawal, the CRA shall assign a rating to such instrument and issue a press release...The press release shall also mention the reason(s) for withdrawal of rating," Sebi noted.

The regulator, in a notification dated May 30, had imposed 10 per cent cap on cross-shareholding in credit rating agencies, raised their net worth requirement to Rs 25 crore from Rs 5 crore and disallowed having a seat on the rival's board.

The new norms are likely to have an impact on global rating agencies like S&P, Moody's and Fitch which have significant holdings in domestic agencies besides their direct presence.

The minimum net worth threshold for the rating agencies has been raised to Rs 25 crore from the current level of Rs 5 crore. The regulator has given three years to existing CRA to comply with networth requirement.

The promoter of a CRA would have to maintain a minimum shareholding of 26 per cent in the firm for a period of three years from the date of registration.