Money & Banking
Crisil is in talks with market regulator SEBI to address concerns arising out of the rising number of companies being rated as ‘issuer non-cooperating’.
“We are talking with the regulators on how to tackle this challenge and how can we help improve the entire ecosystem. Investors, banks and stakeholders have visibility on non-cooperation disclosed in the press releases and they also need to encourage issuers to cooperate with the rating agencies,” Amish Mehta, Managing Director and CEO, Crisil told BusinessLine.
The market regulator, in 2020, had said if an issuer has an outstanding rating as non-cooperative for more then six months, credit rating agencies would downgrade it to non-investment grade with the Issuer Not Cooperating status. While the regulation was meant to be a deterrent, the number of companies being rated as ‘issuer non-cooperating has risen sharply for all rating agencies with as many as 45-50 per cent of the rated entities falling in this category according to industry estimates.
“The regulator has mandated rating agencies to highlight non-cooperation, be transparent about it, and maintain ratings for non-cooperative issuers also under surveillance. Therefore, if a rated corporate does not cooperate with the rating agency, it will have to be disclosed. This will not be seen in a good light by its stakeholders. CRISIL always actively engages with the client, and attempts to get all the information needed, and also helps the client understand the value of cooperation with rating agencies.,” Mehta added.
As per SEBI guidelines, a credit rating agency can withdraw ratings only after the debt is fully repaid. In case of bank facilities, the bankers give an NOC to withdraw the rating. The aspect of repayment becomes challenging in case of facilities like cash credit where there is no defined maturity period. Meanwhile, rating agencies continue to rate these firms based on publicly available data but most of them say it is a challenge. There has also been no decision on a proposal by rating agencies to withdraw ratings of such non-co-operating companies.
Regulations going the right way
Mehta, however, reckons that the overall regulations on credit rating is shaping up in the right direction. “We, too, are dependent on information and disclosures from issuers, besides information from other sources. We would always take the necessary rating action based on available information within reasonable timelines. For instance, SEBI mandated in 2017 that within 5 days, CRAs have to put out a press release. These changes have helped standardise the process across the industry and also make it transparent to clients. I think some of these steps are going to help you because you are benchmarking with what happens best-in-class globally, you are bringing some of that thought process in. You are also learning from your experiences of what has happened in the market. The regulator, I am sure, is also using some of the experiences and shaping the regulations to make the ecosystem even more robust.” Mehta said.