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Press Trust of India Market regulator SEBI on Wednesday allowed debt issuers to review ratings given by agencies, a move that will check the menace of ‘rating shopping’ and ‘pick-and-choose’ approach in their actions.
In the past, several firms have expressed dissatisfaction against credit rating agencies (CRAs) after ratings on their debt were suddenly downgraded or withdrawn.
Now, such firms may approach credit rating agencies with more supporting documents for a better rating.
“In the interest of transparency and fairness, it has been decided that all cases of requests by an issuer for review of the rating(s) provided to its instrument(s) by the CRA, shall be reviewed by a rating committee of the CRA that shall consist of a majority of independent members,” SEBI said in a circular.
The move is aimed at enhancing the governance, accountability and functioning of CRAs, the Securities and Exchange Board of India added.
The regulator has also defined “independent” members as those people who have no pecuniary relationship with the CRA or any of its employees.
In order to make the disclosures more relevant, SEBI said that all non-accepted ratings will have to be disclosed on the CRA’s website for a period of 12 months in a prescribed format.
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