RBI raises concern over the role of ‘rating advisers’
RBI has pinpointed the conflict of interest on the functioning of credit rating agencies and is fully concerned over the role of the little known club of ‘rating advisers,’ which are the unregulated entities acting as brokers between the companies and the rating agencies.
In the meeting RBI governor, Shaktikanta Das asked the senior agency officials about the share of ‘non-rating activities’ in earnings of rating companies. And it is perceived that the motivation to downgrade security would be lower for an agency which carries out both businesses.
The governor made it clear that the credit rating is a different kind of business in which the revenue should not be the primary objective.
The rating agencies came under the glare after IL & FS bonds were downgraded from ‘triple-A’ to ‘D’ in just 40 days and about 25,000 companies are rated in India, out of which half are estimated to be below ‘investment grade.’
The rotation of the rating agencies takes place in every five years- it is that kind of regulation that applies to auditors- which is another suggestion which has been cropped up in making the agencies more independent and active.
In recent years, the agency has become fiercely very competitive. The rating industry has grown with the RBI stating that the unrated loans should be assigned higher capital.