India Considers Expanded Ratings Regulation

February 14, 2011 by · Leave a Comment
Filed under: The Rating Agencies 

The Securities and Exchange Board of India (SEBI) is reviewing limitations on “rating shopping” by issuers of corporate bonds. Current Indian law allows a corporation to accept or reject a rating issued by a credit rating agency. The credit rating agency then keeps the rejected rating confidential.

The SEBI is worried that corporations are successfully hiding bad credit ratings and only using ratings that are favorable.

Under consideration is a requirement that credit rating agencies make all ratings public, even those evaluations rejected by the company. Other proposals include allowing credit ratings agencies to offer unsolicited ratings and asking corporations to be rated by two ore more agencies.

As in the United States, credit ratings agencies in India are hired by issuers. Regulators are also pushing for agencies to erect “firewalls” between the credit rating agencies business development teams and the debt analysts to minimize any risk of conflict of interest.

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