The Reserve Bank of India (RBI) has asked credit rating firms to list the companies holding back information used to assess the credit-worthiness of a borrower
Of the 40,000 companies rated in India, about half do not cooperate with credit rating agencies (CRAs).
“RBI now wants to know how many such ratings are there, why have these borrowers not disclosed information, since when are they not cooperating etc. Since a predominant number of such ratings pertain to bank loans, RBI has taken up the matter,” a person aware of the matter told ET.
A communique from the banking regulator was received by the credit rating agencies (CRAs) towards the end of May, said the person.
Rating agencies either rely on publicly available data or withdraw the rating of such borrowers who refuse to disclose financials and other information.
Such ratings are categorised as “issuer not cooperating” (INC), with CRAs using this as a suffix with the credit rating symbol. In the absence of adequate information, CRAs use reports published by debenture trustees and feedback from bankers and auditors to arrive at INC ratings. Given a choice CRAs, which receive no fees for the effort put in on INC ratings, would prefer to withdraw the rating. However, withdrawal requires the no-objection from bankers, who are typically reluctant to give it – probably because credit officers of banks would like any rating agency to be associated with a borrower.
A company, particularly unlisted ones, may stop cooperating with CRAs to hide their true financial position or mask disputes, irregularities and stresses that could trigger a rating downgrade. Readmore
Source By: economictimes
