RBI criticizes credit rating agencies for inaccurate rating affecting investors. Warns of 'rating shopping' for long term bank loans

Mumbai, December 30: Reserve Bank of India on Monday criticised the credit rating agencies for allowing low rated companies to do rating shopping. In the 25th edition of the Financial Stability Report, RBI warned of 'rating shopping' by companies for long term bank loans based on indicative ratings given by CRAs which are not available to the banks or investors.

 

 

Rating agencies have been largely blamed for their lax policies and oversight for the 2008 global financial crisis. Securities and Exchange Board of India last Friday penalised Icra, Care and India Ratings of 25 lakh rupees each for their lapses in their duty to investors by not taking timely action when they rated NCDs of IL&FS which owes close to one lakh crore rupees to the system.

 

SEBI also found the agencies guilty of excessively relying on assertions of the IL&FS management. "The Securities and Exchange Board of India (SEBI) has taken a number of steps to improve the financial markets including a revised risk management framework of liquid funds, revised norms for investment and valuation of money market and debt securities by mutual funds (MFs), revised norms for credit rating agencies (CRAs), facilitating new commodity derivative products and setting up institutional trading platforms (ITPs) on stock exchanges to promote start-ups", the statement read.

"Reserve Bank has initiated policy measures: to introduce a liquidity management regime for NBFCs; to improve the banks’ governance culture; for resolution of stressed assets and for the development of payment infrastructure", it added.

 

The Reserve Bank of India released the 20th issue of the Financial Stability Report noting that India’s financial system remains stable notwithstanding weakening domestic growth; the resilience of the banking sector has improved following recapitalisation of Public Sector Banks (PSBs) by the Government. Risks arising out of global/domestic economic uncertainties and geopolitical developments, however, persist.