Sebi Outlines Easy Norms For Credit Rating Agencies

The Securities and Exchange Board of India has finalised draft regulations for credit rating agencies. According to the Sebi chairman, D R Mehta, these regulations would not be heavy-handed on credit rating agencies.

Sebi has set up a committee to finalise the draft regulations. The committee includes, Sebi executive directors Vijay Ranjan and Dharmishta Rawal, Lalitha Gupte from ICICI, P S Subramanian from IDBI, and representatives from the Reserve Bank of India, Moody's and Duff & Phelph. The committee met yesterday to discuss various issues concerning regulations already drafted by Sebi. The key focus of yesterday's discussion was on the eligibility criteria, obligations, networth criteria, infrastructure and experience.

 

Credit rating is a process of giving an opinion. The business is handled by professionals. Therefore, we cannot be heavy-handed while regulating them as market also plays a crucial role in regulating these agencies. They will be given adequate freedom to carry out their job of rating instruments of companies, Mehta said.

Whether foreign agencies would have to set up a joint venture or would they have to form a subsidiary are some issues that were debated extensively at the meeting. We have not yet arrived at a final decision on the issue, said a committee member.

As far as violations and penalties are concerned they will depend on the investors complaint or the wrong rating given. Sebi will certainly prescribe penalties for violations of eligibility or disclosure norms. However, in an issue of ratings of companies or instruments issued by them, the penalty would not be so stringent. Ratings are the professionals judgement. The possibility of any fraud or intention to cheat seems remote in these cases, the member added.

Sebi initially had two meetings with representatives of all players and then formed the committee which met yesterday. Credit rating agencies have been registered as intermediaries under Sebi Act and thus would come under the regulatory purview of Sebi.

When asked if India is the only country to have regulations for credit rating agencies, Mehta said that there are 8-10 countries in the world who have such regulations.