Securities and Exchange Board of India (SEBI) Chairman, Ajay Tyagi speaks during a press conference in Mumbai on Wednesday (Photographer: Mitesh Bhuvad/PTI)

Not Happy With State Of Affairs At Rating Agencies: SEBI Chairman

The Securities and Exchange Board of India (SEBI) said that it is "not happy" with the current state of affairs at credit rating agencies and will soon float a discussion paper for a new set of norms.

This follows within days of the watchdog tightening the disclosure norms for the credit rating agencies amid concerns about delayed rating action regarding debt-ridden firms.

"We are bringing out a discussion paper within a month," said Chairman Ajay Tyagi, in reply to a question on how SEBI would deal with the situation if the rating agencies fail to adhere to the new set of stricter norms. Tyagi further said the regulator will look at the views from all stakeholders before taking a final call.

“We are not happy with the current state of affairs at the credit rating agencies,” the SEBI chairman said.

The agencies have been facing a lot of flak lately, especially with regard to limited warning from their side about defaults by companies on bonds.

Last week, SEBI asked the agencies to proactively monitor financial health, including share price movement, of companies to provide timely and accurate ratings on their debts.

The decision followed several instances of credit rating agencies not taking cognisance of delays in servicing debt obligations by the issuers they rate, even though the information has already been discounted by the market.

Besides, SEBI has increased disclosure requirements for the credit rating agencies and wants them to monitor the exchange websites for disclosures made by the issuers.

SEBI asked the rating agencies to carry out a review of the ratings upon the "occurrence of or announcement/news of material events", including financial results, any significant decline in share/bond prices of the issuer or group companies if it is not in line with the overall market movement and any attachment or prohibitory orders against the company.

Besides, the rating agencies would have to seek a 'no default statement' from the issuer at the end of each month.

In the rating action, disclosure report by the credit rating agencies would include key financial indicators and ratios for the issuer for the last and current financial year, in tabular form, as well as any other significant information relevant to the issuer and its sector, the regulator said.

SEBI has also asked the agencies to make disclosures in case of considerable delay in providing information by the issuer.

"If the issuer does not share information sought by the credit rating agencies within seven days of seeking such information from the issuer, even after repeated reminders... the credit rating agencies shall take appropriate rating action depending upon the severity of information risk...," it said.

Rating agencies have to accept an appeal from the issuer with regard to review of rating within five working days.

In case rating is not accepted by the issuer within a month of communication of rating by the credit rating agency to the issuer, the same shall be disclosed as ‘non accepted rating’ on the credit rating agency’s website.
SEBI Statement

The agencies have been advised to refrain from giving indicative ratings without having a written agreement in place.