Criticism faced by Credit rating firms from RBI

The credit rating firms came under the sharp criticism from the RBI for failing to identify the financial troubles in various companies, especially in the case of IL & FS.

In the meeting, the Central Bank governor Shaktikanta Das and the other deputy governors expressed their concerns for the overrating agencies who are unable to assess the credit risk and take timely rating actions. According to the RBI statement, the ratings are supposed to be forward-looking, but they are always a straggler. And they have told credit rating officials that the ratings have downgraded in the recent months and has hurt investors and banks.

These credit agencies have been criticized for being late in identifying the stress in the IL & FS Group, which defaulted on its loans from the banks, provident funds, and mutual funds.

The RBI governor disapproved the practice of “rating shopping”- where companies migrate from one rating agency to another for better ratings. RBI will examine the matter along with the Sebi. As credit rating agencies were registered with the capital market regulator Sebi, and both Sebi and RBI jointly regulate them and constitute 70% of the business